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Jun 26, 2020

Covid-19: The impact on guidance, buybacks and dividends in the S&P 1500

Data shows 39 percent of S&P 1500 withdrew guidance between March and mid-June

Covid-19 has led to widespread changes to financial guidance, buyback programs and dividend payments across the whole of the US equity market, although notable differences exist between different market-cap segments, according to new research.

IR Magazine has worked with MyLogIQ, a provider of intelligence tools focused on compliance and disclosure, to understand how companies on the S&P Composite 1500 Index have responded to disruption caused by the pandemic.

To gather the data, MyLogIQ analyzed SEC filings of companies included in the S&P 1500, which accounts for around 90 percent of US market capitalization, between March 1 and June 12. The firm used its AI-based platform to search for concepts such as ‘withdrawing guidance’, ‘dividend suspension’ and ‘share-buyback pause’.

According to the analysis, 39 percent of S&P 1500 companies withdrew financial guidance during this period. Looking at the main market-cap segments of the S&P 1500, guidance was withdrawn by 47 percent of companies on the S&P 500, 35 percent of the S&P MidCap 400 Index and 34 percent of the S&P SmallCap 600 Index. 

The vast majority of the data covers full-year guidance withdrawals, says MyLogIQ. Given that some companies do not provide guidance, the percentage of companies that previously gave guidance and then withdrew it will be higher. 

‘Due to the direct impact and the uncertainty stemming from Covid-19, many companies made the determination to revoke previously issued guidance for 2020,’ says Loren Mortman, president at The Equity Group, an IR consultancy.

‘A lot of companies, in various sectors, did not have the proper visibility to reaffirm prior guidance, and it was not prudent to restate or issue new projections that were not supported by high-probability assumptions.’

Mortman says it is rare for a large number of companies to completely suspend financial guidance. Typically, companies will revise figures in light of changing macro, sector or business-specific conditions, she says. 

Smaller companies are less likely to offer guidance in the first place, notes Mortman. ‘Many small-cap companies don’t provide specific financial guidance, but rather provide outlook commentary,’ she says. ‘In Q1 2020 earnings releases and calls, much of that commentary involved amending remarks made in year-end 2019 communications to account for the challenges surrounding Covid-19.’

Buybacks and dividends

As has been well documented, many companies have also adjusted buyback programs and dividend payments during the Covid-19 pandemic to shore up balance sheets. Some companies, notably those in the financial sector, came under additional pressure from lawmakers to rein in payments to shareholders. 

Nearly a quarter (23 percent) of companies suspended buyback programs in the S&P 1500, according to the data from MyLogIQ. Across the market-cap segments, 31 percent of S&P 500 companies suspended buybacks, as did 22 percent of the S&P 400 and 17 percent of the S&P 600.

Writing in IR Magazine in April, Oliver Schutzmann, CEO of Iridium Advisors, said the crisis had prompted a ‘backlash’ against buybacks. ‘Companies that continue to buy their own shares are being painted as reckless or greedy or both,’ he said. ‘Returning money to shareholders when the world is in upheaval betrays a moral vacuum. And most corporates are falling in line with these demands.’

Turning to dividends, 11 percent of S&P 1500 companies cut or suspended these payouts, says MyLogIQ. The figure for both the S&P 500 and S&P 400 is 12 percent, compared with 10 percent for the S&P 600.

While some companies saw heavy share price falls after cutting their dividend, research suggests most investors understand the need for adjustments at the current time. In an April survey of professional investors conducted by Boston Consulting Group, 57 percent of respondents say they are ‘comfortable with companies not maintaining the dividend per share in the near term’.

New concepts

Alongside guidance, buybacks and dividends, companies found themselves discussing new concepts with investors and analysts during the first-quarter earnings season. 

Many earnings calls included conversations about the Paycheck Protection Program, which provides loans to small businesses affected by Covid-19 to help keep workers on the payroll. ‘It was important for companies to be clear on the extent they had drawn on government resources – and on which programs – and their expectations around paying back the funds,’ says Mortman. 

Another new term many companies discussed was ‘essential business’. News searches on Google in the US show a spike of interest in the term beginning around mid-March.

‘Businesses, or segments of businesses, that were deemed essential because their products or services are critical to the economy based on guidelines issued by the US Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency certainly noted that [phrase] in their communications, and in many cases made specific announcements relating to this designation,’ says Mortman.