A clear trend this earnings season with respect to consensus estimates of COVID-19’s economic impacts is that consensus has generally underestimated the positive impact of stockpiling for the Consumer Staples and Health Care sectors.
Health Care giants Novartis, AstraZeneca, and GlaxoSmithKline all reported earnings ahead of consensus expectations, with COVID-19-related stockpiling of drugs contributing to this. Within the pan-European Consumer Staples space, Reckitt Benckiser delivered the biggest beat to consensus estimates, as surging consumer demand for health- and cleaning-related products drove like-for-like sales growth of 13.3% in Q1 versus the consensus estimate of 5.3%.
The downturn in commodity prices has resulted in Royal Dutch Shell cutting its dividend for the first time since World War II. The company will reduce its quarterly dividend payment by 66% to $0.16 per share from $0.47 previously, in order to “provide financial resilience and further flexibility to manage the uncertainty”.
Flash estimates for Q1 euro area GDP suggest the economy contracted 3.8% q/q, making this the most severe downturn for the economic block in some 50 years. With most of the lockdowns having taken effect mid-March, the full economic impact is likely to be even more dramatic in Q2. European Central Bank (ECB) governor Christine Lagarde suggested the regional economy could contract by as much as 12% in 2020, slightly less than RBC Capital Markets’ -13.5% projection. The ECB announced additional liquidity operations but stopped short of expanding its quantitative easing programme, preferring to reserve some ammunition for future use, if needed.
