The second quarter ends on Thursday, and markets will be gearing up for the kick-off of second quarter earnings season in coming weeks.
The recent referendum vote for Great Britain to leave the European Union is sure to be a key question posed to management teams by analysts. In fact, it looks like Brexit may very well be the new excuse for companies that issue disappointing guidance.
Carnival (CCL), the first company to report quarterly financial results after the June 23 Brexit vote, gave a glimpse at the types of excuses companies may make for Brexit.
In the company’s second quarter report on June 28, management narrowed fiscal year earnings guidance to $3.25 and $3.35 per share (from a previous estimate of $3.20 to $3.40 per share), but the midpoint was maintained.
But that doesn’t mean there was no Brexit impact. In fact, CEO Arnold Donald spoke to a significant earnings drag from currency in the wake of the vote.
“The second quarter results, combined with our strong book position, has enabled us to maintain the midpoint of our full year guidance range, despite a $0.17 drag from fuel and currency,” Donald said on the quarterly conference call.
Donald explained that strong demand and pricing offset the impact of Brexit, and specifically the deterioration of the British pound, which represents about 30% of the company’s currency exposure.
“Essentially, the strength in underlying demand for our product fostered greater ticket prices in both the quarter and in the remainder of the year, offsetting the rise of fuel prices since the time of our last guidance as well as the very recent significant movement in currency exchange rates following the Brexit vote,” Donald said.
For now, the management did not feel the need to make any additional adjustments to guidance due to the Brexit vote.
“At this point in time, it's the FX impact, which obviously we calculated in. We've taken a strong look at our business obviously in the U.K. and in Europe, and then everywhere else and we're able to see what possible ramifications would be. But at this point we have no reason to adjust anything,” Donald said.
As more S&P 500 companies release earnings results in the coming weeks, investors will be keeping a close eye on commentary from companies concerning the potential impact of the Brexit vote on both earnings and revenue going forward, with currency particularly in focus.
