By Sam Ro - Based on my reading of Q1 earnings announcements, I think corporate managers may have been a little too optimistic in their expectations for economic recovery. Below is some language I expect to hear during the Q2 earnings announcement season.
(Company XYZ) Reports Second Quarter Results
Q2 net revenue was weaker than we had initially anticipated. April and May were inline with our projections. However, demand fell significantly in June. Year-over-year comparisons were particularly challenging due to last year’s stimulus checks. Top line weakness was partially offset by favorable currency movements since the beginning of the year (i.e. the weaker dollar).
Net income was in the low end of our previous guidance due to weak volume. However, the operating profit margin benefited from cost saving restructuring initiatives, which included idling factories and laying off employees. Thanks to significant reductions in capital expenditures, the company had significant free cash flows which were used to repurchase shares. Adjusted for restructuring charges, earnings per share was in the high end of our guidance.
“Our company has performed well in this challenging macroeconomic situation,” said the CEO. “We continue to take actions to right-size our operations in response to the evolving demand environment. We believe we will be in a stronger competitive position when the recession ends.”
“Because economic conditions continue to deteriorate, we believed it was prudent to revise downward our full year earnings guidance range. We continue to see further deterioration in consumer confidence due to weak employment conditions and higher-than-expected gasoline prices. Raw material and energy costs are higher than we had initially budgeted, which is pressuring our gross profit margins. Projected weakness should be partially offset by the benefits of a weaker dollar.”
We look forward to speaking to you again in three months.