OIL MAJORS’ PROFITS HIT A DRY HOLE. Major oil companies lost more than $15 billion in this year’s second quarter, tanking their stock prices.
ExxonMobil, the world’s biggest oil company, posted a second consecutive negative quarter for the first time, reporting a $1.1-billion loss, compared to $3.1 billion in profit a year earlier.
Chevron lost $8.3 billion, its largest quarterly loss since 1998 when Dow Jones Market Data began recording the data. It had turned a $4.2-billion profit during the same period in 2019.
The company wrote down $2.6 billion on its Venezuelan holdings, citing the country’s economic crash and political chaos. It wrote down another $3.1 billion, lowering its estimates for future oil prices.
Royal Dutch Shell took a second-quarter loss of $18.4 billion, its first quarterly loss since 2015, which included a $16.8-billion write-down.
A year earlier, the company reported profits of $3 billion.
Shell also saw its debt rise to 33 percent of capital; its target had been 25 percent.
French oil giant, Total, posted an $8.4 billion loss, of which $8.1 billion was due to lowering asset values. Total reported its gas stations saw a 30-percent decline in demand for the quarter, but by June demand had climbed back to 90 percent of pre-shutdown levels.
U.S. oil prices averaged below $30 a barrel and international benchmark Brent crude $33 over this year’s second quarter, according to Dow Jones Market Data, prices at which few U.S. companies or global majors can break even.
At one point in April, global oil demand fell by a third, while oil companies kept producing and creating a glut that briefly drove U.S. futures prices into negative numbers for the first time.
Prices have since recovered somewhat and now hover steadily around $40 a barrel.
In response to a flooded market, ExxonMobil cut back production 7 percent and Chevron 3 percent in the quarter. Exxon’s exploration and production arm lost $1.7 billion for the period, Chevron’s $6.1 billion.
Meanwhile, active money managers are holding fewer oil and gas assets than at any time since 2005, according to investment bank Evercore ISI.
The loss of confidence in the stocks has driven prices down. ExxonMobil is trading at its lowest level since 1977, long before Exxon and Mobil combined; BP, Shell, and Total are trading at 30-year lows, the bank reported.
Shell cut its stock dividend in half for the first time in 75 years. Both Exxon and Chevron have vowed not to cut dividends this year.
Exxon had announced a 30-percent cut to its capital spending for this year and now has identified “significant potential for additional reductions,” especially in the U.S. Permian Basin shale play, where it will reduce its number of working rigs by at least 75 percent this year.
Chevon now has just four rigs in the basin and will cut production there by 7 percent this year.
Exxon said it also will take on no new debt this year, after piling on $8.8 billion in loans during the second quarter.
Shell is restructuring to become leaner and simpler, said CFO Jessica Uhl, without offering details.
“There remains continued significant uncertainty in terms of how the pandemic will play out,” she added. “We’re seeing a lot of starting and stopping around the world that impacts our assets [and] supply chains.”
TREND FORECAST: As global economies sink deeper, oil prices will go lower. The supply is far greater than demand.
As we have long forecast, oil prices will remain relatively steady but are unlikely to settle above $50 this year.
Many oil-rich nations, both rich and poor, need prices higher than the $50 per barrel range to turn a profit.
As we have forecast in our Geopolitical sections, with tensions heating up in the Middle East, should major military conflict erupt between Egypt and Turkey in the Libyan conflict and/or the U.S. and Israel vs. Iran… oil prices will sharply spike.
Should that occur, the already declining world economy will crash further into the “Greatest Depression.”
AUTOMAKERS RUN INTO THE DITCH. Ford Motor Co. reported losing $1.9 billion in the second quarter, a lesser hit than the $5 billion loss the company had forecast in April.
The company lost money in every market, including North America, its most lucrative.
Volkswagen, which also owns Audi and Porsche, lost €1.61 billion, compared to a net profit of €3.96 billion in 2019’s second quarter. Revenue fell 37 percent to €41.08.
Renault posted losses of €7.29 billion for the first half of the year, made worse by its part ownership of the struggling Nissan Motor Co., which expects to lose $6.4 billion in its current year.
Renault’s performance more than doubled the loss it recorded for all of 2009 in the midst of the Great Recession and sunk below analysts’ expected €4.49-billion loss.
General Motors Co. posted a $536 million pre-tax loss for the same period.
NISSAN SEES ANOTHER YEAR OF LOSS. For the second consecutive fiscal year, Nissan Motors will lose more than $6 billion, the company said on 28 July.
The company projected a loss worth $6.4 billion for the year ending March 2021.
Last year’s losses were attributed to corporate restructuring; this year’s will be due to a weak vehicle market, Nissan said.
The company projects sales of four million vehicles this fiscal year, compared to 4.9 million in the last.
TREND FORECAST: It should be noted we have been reporting since last year that auto sales in major markets such as China, Europe and India were already in sharp decline. Thus, the slump in auto sales will worsen as the global economy continues to weaken.
EUROPEAN AIRLINE CONGLOMERATE POSTS RECORD LOSS. International Consolidated Airlines Group (ICAG) reported a record loss during this year’s second quarter and announced plans to reduce operations for the rest of 2020.
The company owns British Airways, Iberia Airlines, and Aerlingus in Ireland.
ICAG will reduce capacity 76 percent in the current quarter, compared to the same period a year ago, and 46 percent in the fourth.
Previously, the company had said it would reduce capacity by 55 and 30 percent, respectively.
ICAG also altered its business outlook, saying now that air travel will return to pre-pandemic levels in 2024, not 2023 as it had predicted earlier.
In the second quarter, the airline group posted a loss of €2.1 billion, contrasted with a profit of €736 million in the same period a year earlier. Second-quarter sales plunged 89 percent to €741 million.
The airline group posted a record €3.8-billion net loss for the first half of this year, contrasted with a net profit of €806 million during the first six months of 2019. However, cargo revenues jumped 31.3 percent from the beginning of the year through June.
British Airways alone lost £711 million during the second quarter. The carrier lost £187 million in the three months following the 2001 terrorist attacks on the U.S. and only £309 million in the first three months of 2009 during the worst of the Great Recession.
British Airways also is retiring 32 Boeing jets and 15 Airbus planes and is deferring deliveries of 68 new Airbus and Boeing jets it was going to accept through 2022.
In late July, American Airlines and Southwest Airlines cut schedules after an early jump in reservations after economies began to reopen fell back.
The airline industry was forced to make structural changes as a result of the 2001 attacks and the Great Recession, noted Willie Walsh, ICAG’s CEO.
The scale of the challenges the industry faced then were “much smaller,” he said.
“Anyone who believes this is just a temporary downturn and therefore can be fixed with temporary measures seriously misjudges what the industry is going through.”
BOEING STILL IN A TAILSPIN. The U.S.’s flagship aircraft maker lost a worse-than-expected $2.4 billion in 2020’s second quarter, leading it to plan more layoffs than the 19,000 already announced and to mull the prospect of closing at least one of its three main U.S. assembly plants.
Revenue fell 25 percent year-on-year to $11.8 billion.
Boeing ended the period with about $30 billion in liquidity and $60 billion in debts.
The company’s commercial aircraft business will remain weak for the balance of this year, company officials said, leaving Boeing relying more heavily on defense contracts, revenue from which was flat in the quarter.
The company expects commercial aircraft sales to begin to recover in 2021, although it does not see airplane travel returning to pre-pandemic levels until 2023.
TREND FORECAST: Global air travel will fall 60 percent this year compared to last and not fully recover until 2024, according to the International Air Travel Association, the airline, travel and hospitality sectors will sink deeper in depression.
OLDEST U.S. CLOTHING RETAILER GOES BUST. Lord & Taylor, the tony clothier founded in 1826, filed for Chapter 11 bankruptcy on 2 August, listing both assets and debts as being between $100 million and $500 million.
Lord & Taylor was planning to sell off the inventory in its 38 department stores once the economic shutdown was lifted, file for bankruptcy, and cease to exist, Reuters reported in May.
Le Tote, a fashion rental start-up, bought Lord & Taylor from Saks Fifth Avenue in 2019 from Hudson’s Bay Company for 100 million Canadian dollars. Hudson’s Bay retained ownership of some Lord & Taylor store buildings and agreed to pay the company’s rents, reported as tens of millions of dollars annually.
Lord & Taylor has been a fixture on New York’s Fifth Avenue since 1914 and was renowned for its December holiday window displays.
The company joins a roster of retailers gone bust during the economic shutdown, including J. Crew, J.C. Penney, Lucky Brand, and Neiman Marcus.
TREND FORECAST: With a masked-up, work-at-home, online-leaning school system New ABnormal behavioral culture, more people will get less dressed up, putting more downward pressure on the clothing retail sector.
McDONALD’S: A BIG BITE OUT OF SALES. Sales at McDonald’s U.S. restaurants shrank 24 percent during the year’s second quarter, slightly more than analysts had expected.
Sales at stores outside the U.S. plunged 41 percent.
Analysts had looked for earnings of 74 cents a share but the company delivered only 66 cents, a 68 percent decline from a year earlier.
The corporation has spent $200 million during the lockdown on additional advertising to drive more customers to its stores, $31 million on supply-chain expenses, and $45 million to cover franchisees’ unpaid bills, McDonald’s reported.
Restaurants’ margins fell 25 percent as franchisees bought personal protective equipment for workers.
Drive-through sales accounted for 90 percent of sales in McDonald’s U.S. stores.
STARBUCKS POSTS BIG LOSS. Starbucks reported sales at its stores plummeted 40 percent during the second quarter, the worst performance in more than a decade, with revenues carving out a $704-milion loss for the period.
The company reported $4.2 billion in sales for its most recent quarter, 38 percent below those a year earlier.
Starbucks said it expects store sales to be down 12 to 17 percent for the year and fourth-quarter revenue to drop 10 to 15 percent below the third’s.
However, the company said sales are improving already in this quarter and expects losses to moderate now that economies are reopening.
About 96 percent of its U.S. stores are open in some capacity, with more sales shifting to suburban locations as urban office centers host fewer workers, Starbucks reported.
After the pandemic abates, the company will continue the enhanced pick-up and delivery services it began during the lockdown and will continue building more to-go-only stores.
TREND FORECAST: From McDonald’s to Starbucks, fast food outlets around the world are closing stores and going drive-thru. Considering the virus hysteria is but a half-year old, we forecast long-term strategic decisions based on just a few months of New ABnormal behavior will be deleterious to future growth of corporations that are rapidly embracing them. Indeed, as evidenced by the data, drive-thrus are not enough to drive up sales to pre COVID levels.
VISA, MASTERCARD EARNINGS FALL. Skyrocketing unemployment and shut-down businesses caused credit-card lender Visa Inc.’s earnings to fall 23 percent in the second quarter, compared to a year previous.
Credit card purchases were down 20 percent during the same period. Debit-card use rose 3 percent.
Visa’s net income fell from $3.1 billion a year earlier to $2.4 billion in the second quarter. Revenue was down 17 percent, meeting analysts’ expectations.
Mastercard’s revenue shrank 19 percent in the second quarter, year-on-year, to $3.34 billion as people guarded their pennies and millions of cardholders were out of work.
Still, the figure bested analysts’ estimates of $3.25 billion.
The company posted earnings for the period of $1.42 billion, or $1.41 a share, compared to $2.05 billion and $2 a share for the same period in 2019.
The declines resulted, in part, from a 10-percent drop in the average amount of purchases made with the cards and a 45-percent slump in international transactions.
Mastercard also recorded $22 million in legal fees and settlement costs related to disputes with European merchants.
LLOYD’S BRACES FOR LOSSES. Lloyd’s Banking Group has set aside another £2.4 billion to cover an expected rising tide of bad debts, pushing the company into a £676-million loss for the second quarter and sending its share price down 7 percent to an eight-year low.
The added reserves were earmarked largely for bad mortgage loans, which the company sees rising sharply.
Barclay’s net profits tumbled 91 percent in the second quarter, also due to loan loss set-asides that were greater than previously planned.
Santander Bank lost €11.1 billion in the quarter and devalued its U.K. division by 85 percent.
HARLEY POSTS SECOND-QUARTER LOSS AMID FALLING SALES. Harley Davidson reported 27 percent fewer sales during this year’s second quarter than in 2019’s.
The company sold 52,700 vehicles during the three-month stretch, compared to 71,800 a year earlier.
The drop reflected Harley’s reduced 38.5-percent share of the U.S. big-bike market. A year ago, its share was 46.6 percent.
In July, the company announced 700 layoffs, about 13 percent of its global workforce, and an initiative to chop $250 million in costs.
Harley’s revenue fell 53 percent year-on-year to $669.3 million.
TREND FORECAST: The market sector Harley targets, aging boomers, is dying and going broke. Had they moved forward with their previous strategy of making cheaper bikes to appeal to broader, lower income consumers across the globe – with updated performance levels and styles – they would have been on-trend.
L BRANDS SHEDS WORKERS. L Brands, which owns Victoria’s Secret and Bath & Body Works, will cut 850 jobs, or about 15 percent, from its corporate-level workforce as part of an effort to save $400 million a year.
The company expects to pay about $75 million in severance costs.
L Brands will shutter 250 Victoria’s Secret stores this year and is haggling with landlords for concessions in rents in other locales.
Sales at Victoria’s Secret slid 40 percent during the second quarter from a year earlier, while Bath & Body Works sales bumped up 10 percent. Overall, the company’s sales fell 20 percent for the period.
MGM RESORTS: NO FUN IN SECOND QUARTER. MGM Resorts International announced a 91-percent plunge in its second-quarter revenue to $290 million against $3.2 billion a year earlier, showing the damage from travel bans imposed as part of the global economic halt.
The company’s operating loss was $1 billion, compared to operating income of $371 million for the same period in 2019.
“The near-term operating environment will remain challenging and unpredictable as COVID… health and safety protocols, and travel restrictions continue to heavily impact our business,” said CEO Bill Hornbuckle.
On the Las Vegas Strip, MGM’s casinos Bellagio, Excalibur, Luxor, MGM Grand, and New York-New York reopened in June. The casinos are allowed only 50 percent of capacity and few visitors are ready to fly, so Las Vegas’s gambling empires are forced to rely on local residents and drive-in visitors from neighboring states.
Net revenue was off 50 percent year-on-year for MGM’s properties open in June and hotel occupancy was 43 percent, compared to 95 percent a year previous.
Revenues for MGM’s casinos in Macau, China’s gambling mecca, totaled $33 million; a year earlier, the number was $706 million.
The company reported $4.8 billion cash on hand and debts totaling $11.4 billion as of 30 June.
TREND FORECAST: Considering the strict COVID imposed regulations on casinos such as limited capacity, social distancing, mask wearing, entertainment restrictions etc., plus the sharp decline in travel and tourism at a time of growing economic hardship… the casino business will not bounce back in the near future.
We also forecast a sharp drop in both commercial and residential real estate prices in casino cities such as Las Vegas.
