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May 14, 2020, 6:42 a.m. EDT

Earnings season shows how fast companies have upped their digital game, says Goldman

Companies are uncertain about the shape of a recovery and liquidity is a major priority

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By Ciara Linnane, MarketWatch


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Companies are moving to digital strategies during the pandemic

The first-quarter earnings season has revealed how quickly companies are embracing digital and automation strategies, as they shift to dealing with consumers who are complying with stay-at-home rules and other restrictions on movement during the coronavirus pandemic.

The change is one of four key themes identified by Goldman Sachs analysts to emerge from this season’s conference calls with analysts. A surge in online engagement has led companies to quickly shift to digitalization and direct-to-consumer channels, including Chipotle Mexican Grill Inc. /zigman2/quotes/200781108/composite CMG -1.53% , General Electric Co. /zigman2/quotes/208495069/composite GE -0.82%  and Sealed Air Corp. /zigman2/quotes/208564360/composite SEE +0.43% .

“Restaurants added online order-and-pay services, retailers turned to digital marketing and e-commerce, patient care pivoted to telemedicine, work-from-home mandates boosted collaborative technologies, and banks further invested in mobile financing capabilities,” analysts led by U.S. chief equity strategist David Kostin wrote in a Wednesday note.

Companies within consumer sectors reported strong growth in e-commerce, said the note. Video chat app downloads, for example, rose 1,485% in the quarter, home fitness app downloads rose 288%, grocery app downloads rose 214% and e-commerce apps rose 116%.

Direct-to-consumer sales also spiked and many consumer-facing companies aggressively switched to sell directly to end-market customers. The list includes Colgate-Palmolive Co. /zigman2/quotes/200774077/composite CL +0.83% , Charter Communications Inc. /zigman2/quotes/201656355/composite CHTR -0.80% , Garmin Ltd. /zigman2/quotes/203929352/composite GRMN -0.83% , MKC and Corona beer brewer Constellation Brands Inc. /zigman2/quotes/207737284/composite STZ -2.52%  

See: Why Stanley Druckenmiller says the risk-reward of investing in stocks has never been worse

Executives revealed great uncertainty regarding the shape of an eventual recovery from the crisis, although some companies offered glimpses of optimism, said the report. That list included American Express Co. /zigman2/quotes/203805826/composite AXP -0.12%  and Visa Inc. /zigman2/quotes/203660239/composite V +0.08%  

Amex beat earnings expectations despite a steep decline in profit and committed to “no COVID-19 related layoffs” while pledging to cut costs. Visa reported a “significant” deterioration in spending but said volumes were sharply higher at drugstores, Walmart Inc. /zigman2/quotes/207374728/composite WMT +0.52%  and Target Corp /zigman2/quotes/207799045/composite TGT +0.66%

“Amid the ongoing stay-at-home mandates, business closures, and social distancing measures, roughly 180 companies pulled earnings guidance,” said the analysts. “The bottom-up consensus estimate of 2020 S&P 500 /zigman2/quotes/210599714/realtime SPX +0.30%  EPS has been revised down by 27% since the start of the year.”

Most executives warned of more trouble in the second quarter, but some, including Archer-Daniels Midland Co. /zigman2/quotes/203479136/composite ADM +0.69% , biotech Amgen Inc. /zigman2/quotes/209157011/composite AMGN -0.94%  and hotel group Hilton Worldwide Holdings Inc. /zigman2/quotes/202780307/composite HLT -0.94% , said they expected the downturn to trough in the three-month-period. There were varying views on whether the recovery would be V-shaped or U- or L-shaped, with companies with greater exposure to travel and face-to-face interactions expecting it would take longer for business to recover.

Read: Marriott CEO calls a bottom as occupancy trends show signs of improvement

Companies in the construction, business supplies and data centers are expecting a much faster recovery.

Some companies said they expected to learn from the reopening of business in China, but others were cautious about assuming the U.S. economy would behave the same way given their vastly different political and social cultures. The latter list includes the likes of multinational Eaton Corp. /zigman2/quotes/205393239/composite ETN +0.88%   and specialty engineering company Idex Corp. /zigman2/quotes/200902545/composite IEX +0.71%  

“Our baseline forecast is S&P 500 EPS will decline year/year by 33% to $110 in 2020, followed by a 55% rebound to $170 in 2021,” said the report.

Not surprisingly, the pandemic brought major changes in the workforce and a divide between those companies that could easily transition to working from home and those that couldn’t. The former camp includes Air Products & Chemcials Inc. /zigman2/quotes/201523430/composite APD +1.60% , Capital One Financial Corp. /zigman2/quotes/204480509/composite COF -0.04% Global Payments Inc. /zigman2/quotes/201234787/composite GPN -1.34%  and health care services company HCA Healthcare Inc. /zigman2/quotes/205934574/composite HCA +0.53%  

“Some companies called out sustained or improved efficiency from their remote employees and potential opportunities for some of their employees to continue working remotely long-term, whereas other companies discussed diminished productivity and operational challenges,” said the note.

Companies with employees still on-site, such as Tyson Foods Inc. /zigman2/quotes/201117502/composite TSN -0.33% , restaurant operator Yum Brands Inc. /zigman2/quotes/209029767/composite YUM +1.78%  and CVS Health Corp. /zigman2/quotes/209664499/composite CVS -1.20% incurred extra costs for the measures needed to keep workers safe. Others, such as Walmart and Lowe’s Cos. /zigman2/quotes/205563664/composite LOW -0.06% , paid or are still paying frontline workers special bonuses.

But many companies cut pay, especially for executives, while others laid off or furloughed staff. The April jobs report showed more than 20 million people have lost their jobs since the start of the pandemic, sending the U.S. jobless rate to 20%.

One major theme in earnings releases was liquidity and the battle to preserve cash and cut spending. In keeping with recommendations from the Securities and Exchange Commission, most companies made some disclosure about their cash positions and many have issued bonds or equity in the past weeks.

Read also: The stock market keeps rising while earnings keep falling — what if stocks are right?

Many companies suspended stock buyback programs and dividends, including Moody’s Corp. /zigman2/quotes/202808835/composite MCO +0.68%  and Northern Trust Corp.  /zigman2/quotes/207066008/composite NTRS -1.01% .

But others said they remain committed to their dividends, including Caterpillar Inc. /zigman2/quotes/203434128/composite CAT +0.53% , Diamondback Energy Inc. /zigman2/quotes/201200230/composite FANG +0.30%  and Procter & Gamble. /zigman2/quotes/202894679/composite PG +0.45%  

/zigman2/quotes/200781108/composite
US : U.S.: NYSE
$ 1,229.28
-19.11 -1.53%
Volume: 240,523
Sept. 24, 2020 4:02p
P/E Ratio
136.43
Dividend Yield
N/A
Market Cap
$34.91 billion
Rev. per Employee
$66,644
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/zigman2/quotes/208495069/composite
US : U.S.: NYSE
$ 6.05
-0.05 -0.82%
Volume: 0.00
Sept. 24, 2020 7:00p
P/E Ratio
14.80
Dividend Yield
0.66%
Market Cap
$53.48 billion
Rev. per Employee
$429,735
loading...
/zigman2/quotes/208564360/composite
US : U.S.: NYSE
$ 37.18
+0.16 +0.43%
Volume: 927,523
Sept. 24, 2020 4:03p
P/E Ratio
13.79
Dividend Yield
1.72%
Market Cap
$5.76 billion
Rev. per Employee
$305,335
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/zigman2/quotes/200774077/composite
US : U.S.: NYSE
$ 75.76
+0.62 +0.83%
Volume: 2.39M
Sept. 24, 2020 4:00p
P/E Ratio
25.31
Dividend Yield
2.32%
Market Cap
$64.43 billion
Rev. per Employee
$450,551
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/zigman2/quotes/201656355/composite
US : U.S.: Nasdaq
$ 611.45
-4.90 -0.80%
Volume: 931,374
Sept. 24, 2020 4:00p
P/E Ratio
57.67
Dividend Yield
N/A
Market Cap
$126.29 billion
Rev. per Employee
$445,245
loading...
/zigman2/quotes/203929352/composite
US : U.S.: Nasdaq
$ 92.68
-0.78 -0.83%
Volume: 640,413
Sept. 24, 2020 4:00p
P/E Ratio
18.98
Dividend Yield
2.63%
Market Cap
$17.87 billion
Rev. per Employee
$257,496
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/zigman2/quotes/207737284/composite
US : U.S.: NYSE
$ 181.87
-4.70 -2.52%
Volume: 1.26M
Sept. 24, 2020 4:03p
P/E Ratio
N/A
Dividend Yield
1.65%
Market Cap
$36.04 billion
Rev. per Employee
$842,260
loading...
/zigman2/quotes/203805826/composite
US : U.S.: NYSE
$ 95.45
-0.11 -0.12%
Volume: 4.25M
Sept. 24, 2020 4:03p
P/E Ratio
19.78
Dividend Yield
1.80%
Market Cap
$76.94 billion
Rev. per Employee
$733,559
loading...
/zigman2/quotes/203660239/composite
US : U.S.: NYSE
$ 195.52
+0.15 +0.08%
Volume: 9.87M
Sept. 24, 2020 4:00p
P/E Ratio
38.17
Dividend Yield
0.61%
Market Cap
$415.72 billion
Rev. per Employee
$1.25M
loading...
/zigman2/quotes/207374728/composite
US : U.S.: NYSE
$ 136.70
+0.71 +0.52%
Volume: 9.82M
Sept. 24, 2020 4:00p
P/E Ratio
21.79
Dividend Yield
1.58%
Market Cap
$385.36 billion
Rev. per Employee
$223,654
loading...
/zigman2/quotes/207799045/composite
US : U.S.: NYSE
$ 152.00
+0.99 +0.66%
Volume: 3.22M
Sept. 24, 2020 4:02p
P/E Ratio
21.94
Dividend Yield
1.79%
Market Cap
$75.60 billion
Rev. per Employee
$209,322
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,246.59
+9.67 +0.30%
Volume: 2.39B
Sept. 24, 2020 5:06p
loading...
/zigman2/quotes/203479136/composite
US : U.S.: NYSE
$ 45.47
+0.31 +0.69%
Volume: 1.61M
Sept. 24, 2020 4:00p
P/E Ratio
14.45
Dividend Yield
3.17%
Market Cap
$25.09 billion
Rev. per Employee
$2.03M
loading...
/zigman2/quotes/209157011/composite
US : U.S.: Nasdaq
$ 240.32
-2.27 -0.94%
Volume: 1.83M
Sept. 24, 2020 4:00p
P/E Ratio
19.64
Dividend Yield
2.66%
Market Cap
$142.08 billion
Rev. per Employee
$1.11M
loading...
/zigman2/quotes/202780307/composite
US : U.S.: NYSE
$ 83.07
-0.79 -0.94%
Volume: 5.31M
Sept. 24, 2020 4:02p
P/E Ratio
648.48
Dividend Yield
0.00%
Market Cap
$23.26 billion
Rev. per Employee
$52,698
loading...
/zigman2/quotes/205393239/composite
US : U.S.: NYSE
$ 99.65
+0.87 +0.88%
Volume: 1.86M
Sept. 24, 2020 4:00p
P/E Ratio
26.82
Dividend Yield
2.93%
Market Cap
$39.52 billion
Rev. per Employee
$218,273
loading...
/zigman2/quotes/200902545/composite
US : U.S.: NYSE
$ 177.76
+1.25 +0.71%
Volume: 251,549
Sept. 24, 2020 4:03p
P/E Ratio
36.23
Dividend Yield
1.13%
Market Cap
$13.33 billion
Rev. per Employee
$337,822
loading...
/zigman2/quotes/201523430/composite
US : U.S.: NYSE
$ 289.99
+4.56 +1.60%
Volume: 795,408
Sept. 24, 2020 4:00p
P/E Ratio
33.61
Dividend Yield
1.85%
Market Cap
$63.05 billion
Rev. per Employee
$548,319
loading...
/zigman2/quotes/204480509/composite
US : U.S.: NYSE
$ 68.10
-0.03 -0.04%
Volume: 3.32M
Sept. 24, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
0.59%
Market Cap
$31.11 billion
Rev. per Employee
$683,151
loading...
/zigman2/quotes/201234787/composite
US : U.S.: NYSE
$ 172.43
-2.35 -1.34%
Volume: 1.17M
Sept. 24, 2020 4:00p
P/E Ratio
116.76
Dividend Yield
0.45%
Market Cap
$52.30 billion
Rev. per Employee
$306,033
loading...
/zigman2/quotes/205934574/composite
US : U.S.: NYSE
$ 116.95
+0.62 +0.53%
Volume: 1.29M
Sept. 24, 2020 4:00p
P/E Ratio
12.06
Dividend Yield
0.00%
Market Cap
$39.32 billion
Rev. per Employee
$178,156
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/zigman2/quotes/201117502/composite
US : U.S.: NYSE
$ 56.90
-0.19 -0.33%
Volume: 7.80M
Sept. 24, 2020 4:00p
P/E Ratio
11.62
Dividend Yield
2.95%
Market Cap
$20.40 billion
Rev. per Employee
$330,628
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/zigman2/quotes/209029767/composite
US : U.S.: NYSE
$ 91.37
+1.60 +1.78%
Volume: 1.65M
Sept. 24, 2020 4:02p
P/E Ratio
27.39
Dividend Yield
2.06%
Market Cap
$27.06 billion
Rev. per Employee
$167,294
loading...
/zigman2/quotes/209664499/composite
US : U.S.: NYSE
$ 56.71
-0.69 -1.20%
Volume: 6.96M
Sept. 24, 2020 4:00p
P/E Ratio
9.00
Dividend Yield
3.53%
Market Cap
$75.12 billion
Rev. per Employee
$659,586
loading...
/zigman2/quotes/205563664/composite
US : U.S.: NYSE
$ 158.52
-0.09 -0.06%
Volume: 3.89M
Sept. 24, 2020 4:02p
P/E Ratio
21.06
Dividend Yield
1.51%
Market Cap
$119.87 billion
Rev. per Employee
$230,029
loading...
/zigman2/quotes/202808835/composite
US : U.S.: NYSE
$ 275.51
+1.85 +0.68%
Volume: 471,166
Sept. 24, 2020 4:03p
P/E Ratio
30.16
Dividend Yield
0.81%
Market Cap
$51.37 billion
Rev. per Employee
$341,746
loading...
/zigman2/quotes/207066008/composite
US : U.S.: Nasdaq
$ 75.22
-0.77 -1.01%
Volume: 1.02M
Sept. 24, 2020 4:00p
P/E Ratio
11.73
Dividend Yield
3.72%
Market Cap
$15.81 billion
Rev. per Employee
$354,867
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/zigman2/quotes/203434128/composite
US : U.S.: NYSE
$ 145.14
+0.76 +0.53%
Volume: 2.14M
Sept. 24, 2020 4:00p
P/E Ratio
19.46
Dividend Yield
2.84%
Market Cap
$78.18 billion
Rev. per Employee
$526,173
loading...
/zigman2/quotes/201200230/composite
US : U.S.: Nasdaq
$ 29.99
+0.09 +0.30%
Volume: 2.03M
Sept. 24, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
5.00%
Market Cap
$4.72 billion
Rev. per Employee
$3.06M
loading...
/zigman2/quotes/202894679/composite
US : U.S.: NYSE
$ 136.92
+0.61 +0.45%
Volume: 5.71M
Sept. 24, 2020 4:02p
P/E Ratio
27.60
Dividend Yield
2.31%
Market Cap
$339.36 billion
Rev. per Employee
$727,304
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Ciara Linnane is MarketWatch's investing- and corporate-news editor. She is based in New York.

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