As we discussed this morning during the RM/PM/Research meeting, here is a summary of the themes we have observed this earnings season:
1. Some of the hardest hit industries:
o SMB’s & highly levered, weaker balance sheet companies. Seeing a consolidation of strength w/ market leaders that could continue
o Retail, restaurants, travel & entertainment. Companies are saying we may not see a return to pre-crisis levels until vaccine. (BKNG, DIS)
o Auto – auctions are shut-down. Could see big fall in used car prices
o Medtech with large portfolio of elective surgeries (such as knee replacement, etc.) as patients and doctors delay non-emergency surgeries
o Airlines and aerospace: the lockdowns have destroyed demand for travelling by plane, and a return to pre-crisis could take up to 2 years
2. China:
o ZTS: China seeing a rebound, and seeing an improvement in US and Europe clinic visits recently
o XYL: China showing signs of early recovery
o FTV: China recovering, plants operating at 80% capacity
o SYK: expect recovery in China in Q2
o ST: China pointing to recovery
o Visa: Hong Kong dropped in early February, along with the rest of China and appears to be recovering in April
o DIS: Shanghai Disney opened yesterday @ 30% capacity
o SHW: “We have started to see some recovery in China at a slower pace than anticipated.”
o Uber said HK is now at 70% of pre-COVID levels
o AAPL: Supply chain is back to a normal operation. Apple stores open
o Moving supply chains? Apple defended current structure but wouldn’t rule it out
3. Europe:
o Europe worse than expected (XYL)
o Region was already challenged before COVID-19 hit, not activity is worse (FTV)
o SHW, BKNG talked about weakness. Visa saw the biggest negative impact in central and southern Europe with similar declines as the US
4. How companies adjusting to current environment…
o Pull forward of digital transformation (MSFT, ACN, ADBE, GOOGL, AAPL)
o Improving bandwidth/connectivity (CCI, CSCO)
o Conserving cash
o Cost cutting
o Sales team transitioned to virtual sales meeting with doctors and training, and think this could be the new normal (SYK, BKI)
5. How consumers adjusting to current environment…
o Use of telemedicine and home deliveries of prescriptions (CVS)
o Could see people using more individual cars rather than public transportation due to COVID-19 change in habits (ST)
o The management team believe this crisis will accelerate the need to monitor patients remotely (RMD)
o Utility sector looking for remote sensing and automated operations (XYL)
o People eating cheaper protein (chicken instead of beef) ZTS
o WFH/distance learning – likely to continue after the pandemic. Positive implications for the technology that supports this and negative for real estate and travel. (GOOGL, MSFT, AAPL, CSCO)
o E-commerce – Increase in online spending especially on essential items. Less so on discretionary items. Companies establishing an online presence that didn’t have one before leading to increased e-comm. competition. (V, HD, SHW, TJX, GOOGL, ADBE)
o Entertainment – Increase in streaming & gaming. (AAPL, GOOGL, DIS)
o Housing & home improvement – seeing underlying strength in housing, nesting benefiting home improvement. (SHW, HD, BKI)
6. Be careful extrapolating current consumer behaviors into the future
o Discretionary…trends exaggerated like streaming, gaming, e-comm
o Staples… shouldn’t extrapolate that center of store food will make a comeback or that cleaning products will be a bigger part of people’s budget
Thanks,
Sarah & Julie
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109