Profits slashed, forecasts out as virus hits firms hard

The number of companies abandoning guidance, downgrading profits or scratching dividends is continuing to grow every day.

The ASX dropped 6.4pc to close at 4953.20 on Wedensday as concerns over Covid-19 grow.Picture: AAP

Coronavirus is ripping through corporate Australia, with the number of companies abandoning guidance, downgrading profits or scratching dividends continuing to grow every day amid market turmoil.

Within three weeks the benchmark The S&P/ASX200 index has erased a year’s worth of gains as the COVID-19 pandemic sparks panic selling across global markets at levels not seen since the 1987 crash.

Companies are furiously retracting previous comments on their full-year earnings, saying it is not known when the storm will pass and are sandbagging their balance sheets as they brace for a recession.

While some sectors are struggling more than others, the virus fallout is not discriminating, with property developers, retailers, entertainment providers and healthcare companies among those scrapping their earnings forecasts or downgrading profit.

Shareholder adviser Dean Paatsh of Ownership Matters said it was “totally appropriate” for companies to withdraw guidance and move to preserve balance sheets given the widespread uncertainty.

“All they are doing are saying that they don’t want any representation out there that they will hit a particular earnings target because it’s completely off the table,” Mr Paatsch said.

“And I’ll point out that at 5000 points, the Australian market is still well above where it was in the depths of the GFC.”

Australia’s biggest private hospital operator, Ramsay Health Care, on Wednesday withdrew previous earnings commentary.

“Given the ongoing high level of uncertainty surrounding the spread, duration and impact of coronavirus, and as its hospitals around the globe move to assist governments with managing the virus, Ramsay is withdrawing earnings guidance for financial year 2020,” group managing director Craig McNally said.

Pharmacy wholesaler Sigma Healthcare issued a market update, but made no mention of guidance. Instead it said it had secured a five-year deal worth $500m a year with the Pharmacy Alliance Group to supply all pharmaceutical and over-the-counter products.

Chief executive Mark Hooper said COVID-19 had created considerable strain on the supply chain, as people engaged in paick buying of medicines.

He said the company was mulling a potential sale and leaseback of its warehouse network to shore up its balance sheet. It had spent $165m in the past four years on buying land and building distribution centres.

“We are dealing with a significant increase in volume as community pharmacy and their customers react. This is putting considerable strain on the supply chain. We are working closely with suppliers, pharmacy, government and agencies to help ensure that medicines can be fairly distributed in accordance with government medicines policy,” Mr Hooper said.

Property developer Mirvac abandoned its guidance but said the group’s balance sheet remained robust, with $944m of cash and committed undrawn bank facilities.

Coronvirus has spilled into the residential real estate market, with online classifieds company REA Group chief executive Owen Wilson saying it was impossible to predict how COVID-19 will affect residential listing volumes.

“Given the exceptional circumstances we are now operating under, and the uncertainty surrounding the economic environment, we are currently assessing the potential impact on REA Group’s financial year 2020 financial performance and withdraw the previous outlook,” he said.

The travel sector has been one of COVID-19’s biggest victims, as governments lock down borders and companies axe non-essential travel, including domestic trips.

Virgin Australia suspended its international flights and further cuts to domestic flights in response to the government enforced travel bans. In effort to counter the travel ban fallout, the Morrison government unveiled a $715m relief package to support airlines.

Regional airline Rex, which also axed its profit guidance, welcomed the package but executive chairman Lim Kim Hai was disappointed it didn’t include a sovereign guarantee on new loans to support cash flow.

“If Rex, with all its strengths, were to collapse, probably following the collapse of all other independent regional carriers, and maybe even a domestic carrier, there will be utter chaos and mayhem on many regional and rural communities that depend on regional air services to be their socio-economic lifeline,” Mr Lim said.

Meanwhile Flight Centre will hold further discussions with stakeholders including landlords, suppliers, vendors, insurers, and banks on ways to manage the financial impact of a precipitous drop in travel activity.

The travel bans have rocked entertainment groups, with trans-Tasman gambling company SkyCity, which owns the Adelaide casino, warning it could be forced to shut its gaming venues.

Crown Resorts has switched off half its poker machines at its flagship casino in Melbourne as well as its Perth complex. Rival Star Entertainment has done the same at its Pyrmont casino.

The poker machine closures triggered gaming machine maker Aristocrat Leisure dumped its earnings guidance.

Dreamworld owner, Ardent Leisure, shut down its Main Event Entertainment Centres in America, following the US Government’s tougher measures to stop the spread of COVID-19.

Elsewhere, retailer Kathmandu said it was experiencing a mass exodus of customers who fear shopping centres will become coronavirus hotspots. Even food manufacturers have been caught out. The world’s biggest dairy exporter, Fonterra, said it would not pay a half-year dividend despite a four-fold increase in net profit, saying the preservation of its balance sheet was more important than paying out shareholders.

While COVID-19 is fuelling revenue growth for some companies, extra costs to meet demand could potentially offset sales gains.

Kirsty Carr, founder and chief executive of baby food and formula company Bub said it was rapidly increasing its capacity to meet the demand from “parents anxious to secure supplies of infant formula” and .

Carbon Revolution, which floated last year and was the ray of hope in Australian manufacturing after the exit or Holden, Ford and Toyota, issued its second downgrade in two days. It is now forecasting total full year revenue to be about 87 per cent of the financial year 2020 prospectus forecast, or about $54m. The announcement almost halved its share price, with the company closing 47.8 per cent lower at $1.31.