Corporate profits

Global corporate profits plummet 33% and won’t rebound anytime soon: JPMorgan

  • With nearly all of the world’s companies reporting second-quarter numbers, JPMorgan analyzed earnings to determine how much the virus has squeezed profits and how long it may take to recover.
  • Global corporate profits fell 33% in the year to the second quarter, the bank’s researchers said. The fall is less than half of the 70% decline that JPMorgan predicted in April.
  • The team still expects “an incomplete recovery that will prevent earnings from returning to pre-pandemic levels anytime soon” as the fallout from the pandemic lingers.
  • The technology and consumer staples sectors suffered the smallest declines in earnings, while energy and consumer discretionary companies suffered the largest declines, according to the bank.
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The impact of the coronavirus on global second-quarter earnings has almost fully materialized, and JPMorgan found a handful of ups and downs in the data.

On the one hand, researchers Joseph Lupton and Olya Borichevska expected a bigger drop. Global profits fell 33% in the year through the second quarter, the company said. The crisis is on par with the trend seen during the financial crisis and has hit some sectors, such as travel and hospitality businesses, much harder than others.

Still, JPMorgan predicted a 70% drop in profits over the same period in an April note. The smaller decline “is due in part to a remarkable level of policy support” that has buoyed demand and helped keep businesses afloat during the shutdowns, the team wrote. Earnings should start to rebound in the current quarter, but just because they fell less than expected doesn’t mean the recovery will be easy.

“The picture remains bleak and we still expect an incomplete recovery that will prevent earnings from returning to pre-pandemic levels anytime soon,” the researchers wrote in a note to clients.

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Weak earnings are already weighing on lagging indicators of economic health. Global capital spending is on track for a 30% drop after profits plummet, JPMorgan said. Even when earnings recover over the coming year, the company doesn’t expect capital spending to fully retrace its pandemic-caused losses until late 2021.

Some companies and countries will return to pre-pandemic profitability before others, the bank added. Tech sector revenue was the best in the first half of 2020, falling just 0.1% on a non-annualized basis, the researchers said. Health care and consumer staples companies followed with profit declines of 4.7% and 5.5%, respectively.

Energy companies suffered the biggest drop, with profits contracting 53.2% over the period. Consumer discretionary companies were the second hardest hit, with profits down 43.9%.

By region, earnings in developed markets fell 45% year-over-year compared to the 23% drop in emerging markets. US corporate profits fell just 15% in the year to the second quarter. Only Taiwan, China, Sweden, Indonesia and Turkey fared better, according to the researchers.

By contrast, earnings in the Eurozone were the hardest hit. UK corporate profits over the period fell nearly 80%. Brazil, Norway and Australia recorded similar declines.

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