Global corporate profits tanked 33% through 2nd quarter and won't rebound 'anytime soon,' JPMorgan says

Global corporate profits tanked 33% through 2nd quarter and won't rebound 'anytime soon,' JPMorgan says
  • With nearly all global companies having reported second-quarter figures, JPMorgan analyzed earnings to determine how hard the virus slammed profits and how long it may take to recover.
  • Global corporate profits tumbled 33% in the year through the second quarter, the bank's researchers said. The slump is less than half of the 70% drop JPMorgan projected in April.
  • The team still expects "an incomplete recovery that will prevent the return of profits to pre-pandemic levels anytime soon" as the pandemic's fallout lingers.
  • The tech and consumer staples sectors suffered the smallest earnings slumps, while energy and consumer discretionary firms endured the largest declines, according to the bank.
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The coronavirus' impact on global second-quarter earnings has all but completely materialized, and JPMorgan found a handful of pros and cons in the data.

For one, researchers Joseph Lupton and Olya Borichevska expected a bigger plunge. Global earnings sank 33% in the year through the second quarter, according to the firm. The slump is on par with the trend seen during the financial crisis and hit certain sectors, such as travel and hospitality firms, far harder than others.

Yet JPMorgan forecasted a profit plunge of 70% over the same period in an April note. The smaller decline "owes in part to a remarkable level of policy support" that buttressed demand and helped keep businesses afloat through lockdowns, the team wrote. Profits are set to begin their bounce-back in the current quarter, but just because they fell less than expected doesn't mean the recovery will be easy.

"The picture remains grim and we still anticipate an incomplete recovery that will prevent the return of profits to pre-pandemic levels anytime soon," the researchers wrote in a note to clients.

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Profit weakness is already weighing on lagging gauges of economic health. Global capital spending is on track for a 30% decline following the earnings slide, JPMorgan said. Even when earnings recover over the coming year, the firm doesn't expect capital spending to fully retrace its pandemic-sourced losses until the end of 2021.

Certain companies and countries will return to pre-pandemic profitability before others, the bank added. Tech sector earnings fared the best through the first half of 2020, only falling 0.1% on a non-annualized basis, according to the researchers. Health care and consumer staples firms followed with earnings declines of 4.7% and 5.5%, respectively.

Energy companies suffered the biggest plunge as profits contracted by 53.2% over the period. Consumer discretionary companies bore the second-largest hit, with earnings falling 43.9%.

By region, developed market earnings sank 45% year-over-year compared to emerging markets' 23% drop. US corporate earnings fell only 15% in the year through the second quarter. Only Taiwan, China, Sweden, Indonesia, and Turkey fared better, the researchers said.

In contrast, the eurozone's profits were hit the hardest. The UK's corporate earnings through the period tanked nearly 80%. Brazil, Norway, and Australia posted similarly dire declines.


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