Joe Brennan: ‘Uncertainty’ line will not wash with investors

United Airlines may have spent 1,150 days undergoing painful restructuring after filing in 2002 for what remains the largest-ever airline bankruptcy. But it said this week that the three months to the end of June this year was "the most difficult financial quarter in its 94-year-history".

The carrier dived to a $1.63 billion (€1.4 billion) loss for the quarter amid an 87 per cent slump in revenues as travel demand virtually dried up as a result of the Covid-19 pandemic.

Dire as the figures were, chief executive Scott Kirby, only months into the job, couldn't help taking a swipe at Delta Airlines and American Airlines, saying while United Airlines burned through $40 million of cash a day during the quarter, its arch rivals were faring worse. United Airlines results also came in slightly better than analysts' beaten-down expectations.

As US earnings season progressed this week, Coca-Cola reported its net profits tumbled by almost a third to $1.78 billion during the second quarter as stockpiling by households during the worst of Covid-19 lockdowns globally failed to offset the hit to sales caused by closures of bars, restaurants and sports and music venues. Still, again, the figures topped consensus forecasts.

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Last week, JPMorgan, Citigroup, Wells Fargo and Bank of America, the US's largest banks, revealed they had set aside more than $30 billion between them during the three months to June to cover expected losses resulting from the economic shock.

The levels of provisions are the highest stomached by the industry since 2008, but, on the whole, the banks’ second-quarter figures came in ahead of Wall Street projections.

While companies moved en masse in March and April to pull their previous earnings forecasts as coronavirus swept through western economies, it seems that the corporate world has done a decent job whispering into the ears of analysts.

Earnings across listed US companies are estimated to be down by an average of 44 per cent for the three months. Still, almost three-quarters of those that have reported so far have beaten market expectations, according to financial data firm FactSet.

Lower bar

The bar has been set even lower on this side of the Atlantic, with analysts predicting that corporate Europe will post an average 59 per cent year-on-year earnings decline for the second quarter, according to Refinitiv, another financial research firm.

It should hardly surprise, therefore, if Dublin-listed companies beat analysts' projections when they report results in the coming weeks – even if the level of official guidance to investors from Ireland plc is pretty minimal. Ryanair will be the first out, on Monday, followed as the week progresses by the likes of sandwich maker Greencore, cardboard box giant Smurfit Kappa, food group Kerry and insurer FBD.

The banks will take stage at the start of August, with analysts at Davy estimating that the three Dublin-listed lenders are on track to report a combined €525 million of net losses for the first half as they book more than €1 billion of bad-loan provisions.

The Central Bank has been looking in recent months into how quick Irish-listed companies have been at updating investors about the impact of Covid-19 on business.

“This review indicates that entities in certain sectors have been more proactive in making announcements than others,” the bank said in a statement published on its website last week. “It is critical that issuers provide investors and other market participants with all of the information they are entitled to at this time.”

More than 70 per cent of Iseq 20 companies and six other large Irish groups listed in London have either formally withdrawn full-year guidance as a result of Covid-19 or warned on their outlook. The likes of Kerry Group, Glanbia, AIB and CRH may have been forgiven as they issued trading statements in April and May saying they could not at that stage offer any reasonable earnings indications to investors.

Detailed disclosures

Companies can’t forecast the future path of the virus – no more than health experts or governments. But they should have carried out a lot of detailed work in recent months on various scenarios, risks and assumptions – and what they mean for the practicalities of how a business is run, sales and earnings, cashflow and funding.

Investors are entitled to detailed disclosures on the outcome of this work. Sticking to the “uncertainty” line and boilerplate statements at this stage should raise red flags.

Meanwhile, analysts point out that the biggest insight into how companies feel about the world will be found in comments offered on dividends from businesses that usually make regular shareholder payments. A slew of companies in Ireland and overseas postponed or scrapped planned final dividends on 2019 earnings to conserve cash or appease regulators, as was the case with banks and insurers.

Investors looking for a short cut through the noise in interim earnings reports could do worse than track down dividend policy statements.