[How bad can it get? Coronavirus outbreak hangs over company earnings]

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[how-bad-can-it-get?-coronavirus-outbreak-hangs-over-company-earnings]

While some individual stocks are being hammered by virus fears, Matthew Haupt, lead portfolio manager at the $3 billion investment firm Wilson Asset Management, said money isn’t moving out of the equity market just yet because alternative assets like bonds have such low returns.“The equity market index has held up really well because there’s more of a rotation within equities than out of equities,” he said.The S&P/ASX200 is trading almost 3 per cent higher since January 11, when the first COVID-19-related death was announced in China and has risen 16 per cent over the past six months.Focus on banksAnd rather than the virus, the main focus on trading desks this week seemed to be that banks are performing better than expected in the wake of the Hayne royal commission.Both Commonwealth Bank and National Australia Bank widened their profit margins in the December half, with the former’s shares surging to a near five-year high after it reported solid results on Wednesday.Concerns around the coronavirus “will weigh on sentiment”, CBA chief Matt Comyn has warned.Credit: AAPQuizzed on the virus, CBA chief executive Matt Comyn said his bank had “minimal” direct exposure to it, but he expected the economy would take a temporary hit from the outbreak and the summer’s massive scale bushfires.“I think it’s reasonable to expect that this quarter … there will be a slowdown as some of those fears and concerns, particularly from the coronavirus, will weigh on sentiment,” he said.”That’s also dependent on how quickly it can be contained and what the spread is.”Profit warningsYet COVID-19’s impact was so acute on some companies that they alerted investors ahead of releasing their results.Hearing device manufacturer Cochlear on Tuesday cut its full-year profit guidance by $30 million to between $270 million and $290 million due to the virus, saying that surgeries to have its devices implanted were being postponed to reduce the risk of infection in Chinese hospitals.Cochlear CEO Dig Howitt said operations were being postponed in Chinese hospitals, denting its profits.
Credit: Edwina PicklesCochlear said it expected sales to bounce back as those surgeries take place once the health crisis subsides, which is what happened following the 2002-2003 SARS epidemic. Yet when that will be, no one knows, and so by Friday morning its shares were trading 7 per cent lower.Health and vitamins business Blackmores released a disastrous trading update on Wednesday, two weeks ahead of its results, and said the virus was partly to blame for a 48 per cent fall in half-year profit and forced it to dump its interim dividend.Hitting the ‘suitcase trade’Blackmores boss Alastair Symington said COVID-19 was a double-edged sword for the vitamins maker. It lifted demand for products thought to boost immunity in Asia and Australia, but that was more than offset by a drop off in sales through the so-called “suitcase trade”, where Chinese visitors stock up on vitamins in Australia to sell or give to family and friends on their return home, he said.”Right now there’s very few tourists coming in from China, if any,” he said.The slowdown of China inbound freight also made it hard to get its products to consumers, with a number of online retailers cancelling their Blackmores promotions in February, while its supply of raw materials such as medical grade glass had also been disrupted.Blackmores says its “suitcase trade” has been hit hard. Credit: AAPThe virus compounded the problems Blackmores faces from higher manufacturing costs at its new Melbourne plant and new product labelling rules. The group’s shares plunged 23.4 per cent.China is also a crucial market for Treasury Wine Estates, but the winemaker said it was too early to factor in the virus to the outlook it released at its half-year results on Wednesday. All Treasury’s staff in China are working from home, it said.Citi analyst Craig Woolford wasn’t as hesitant about making predictions, estimating a $15 million hit to its earnings from the virus in 2020, based on a 20 per cent fall in volumes – or around 200,000 cases of vino.Treasury’s shares fell 5 per cent on Thursday to $11.27 – which is down 36 per cent from a month ago. On Friday shares were trading up 2 per cent at $11.40.’Humanitarian’ exerciseBiotech giant CSL impressed on Wednesday with 7.5 per cent earnings growth, pushing its shares to fresh highs of $328.25 – up 70 per cent from a year ago. The group’s Chinese sales took an expected 30 per cent hit as it moves to a direct distribution model there, but the company said it saw no additional damage from the coronavirus.CSL CEO Paul Perreault said his company’s interest in helping to develop a vaccine was strictly “humanitarian” – not commercial. Credit: Eamon GallagherOn the contrary, the outbreak could be an opportunity for the $149 billion company, which is working with the University of Queensland to help develop a vaccine with the technology it uses in its influenza vaccines.CSL chief executive Paul Perreault stressed that its involvement was a “humanitarian” exercise, not a commercial one. JB Hi-Fi reported a stonking half-year result, with earnings before interest and tax (EBIT) growing at 8 per cent – twice the market’s expectations, and boss Richard Murray was hopeful the company’s enormous buying power would see suppliers give it preferential treatment if the virus started to affect product availability out of China.The big factories wouldn’t be affected, Murray said, “but they might be getting a part from another factory, and if that factory has an issue, and then the question is, will that create a bidding war for commodity products going into [those factories]”.Meanwhile, one of the biggest ASX winners this week has been listed student payments group IDP Education. Its shares had fallen 18 per cent since January 20, as the virus outbreak saw thousands of Chinese students unable to start their studies due to the travel ban.But on Wednesday IDP’s shares bounced back, jumping 28 per cent in one day, after it used its half-year results to assure investors the virus was not having a material impact on its balance sheet. Wilson Asset Management’s Mr Haupt said that against a backdrop of low interest rates and global uncertainty, heightened by the coronavirus, investors were rewarding any company that showed signs of growth this earnings season.“Anything that can deliver growth, it doesn’t matter about the valuation, it’s still going up a lot,” he says. The market was likewise punishing companies that missed expectations.LoadingCMC Market’s McCarthy said market expectations hadn’t been overly high going into the reporting season, with his firm looking for index wide earnings growth of around 4 to 5 per cent. The outperformance by some of the ASX’s biggest companies including CSL and Commonwealth Bank would provide ballast for the rest of the market, he said.Investors will next week learn more about the damage inflicted on some of the stocks most exposed to the COVID-19 contagion – Qantas, Sydney Airport, and the Chinese visitors-dependent casino groups Crown Resorts and Start Entertainment.Most Viewed in BusinessLoading

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