COVID-19’s Impact on Quarterly Earnings

A Mosaic of Printing & Imaging Vendors

06/04/2020

 

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As the earnings season winds down, Keypoint Intelligence reviewed a selection of quarterly earnings announcements to measure COVID-19’s impact on printing and imaging manufacturers over the first four months of 2020. The picture is not pretty—especially when considering that the arrival of the coronavirus was not felt in earnest until March. As businesses shuttered, people hunkered down in their homes to self-distance, and economies suffered severe economic slowdowns, nearly all aspects of manufacturers’ business models were impacted. Revenues for Canon, HP, Konica Minolta, Ricoh, and Xerox declined, succumbing to the global response to the pandemic. Operating margins for most were also compressed significantly.

 

A selection of manufacturers’ quarterly financial announcements

 

One common theme when looking at all the vendors is that hardware sales were impacted more than consumables. This is because the impact of COVID-19 was initially felt in March, which is at the end of the quarter for all but HP, and this is typically the highest volume of hardware sales in a quarter. Additionally, some vendors experienced supply chain disruptions. Canon had production delays in manufacturing sites in Asia. HP also experienced supply chain disruptions early in the year—first in China and then in other parts of Southeast Asia (the company was back to nearly full capacity by May). Another significant factor impacting equipment sales was the cancelling or postponement of tradeshows and events. Additionally, the indirect office equipment dealer channel scaled back their purchases as they struggled to manage their cash positions. As an example of how rapidly the tides turned, Ricoh’s MFP unit sales were up 4% as of February, but they declined 18% in March.

 

For all vendors, print volumes were severely impacted in March. For example, Konica Minolta’s print volumes declined approximately 70% in the EMEA and the US. HP noted that managed print services revenues in the office declined 40% year over year, and Indigo press print volumes (which were up 9% in February) had declined 20% in April. Xerox experienced a 50% decline in page volumes in March.

 

Measuring COVID-19’s impact on quarterly performances

 

On a more positive note, the consumer segment was not as severely impacted as commercial segments. HP did see a 16% decline in hardware units—partially due to supply chain challenges—but this is far less than the 25% decline in commercial hardware unit sales. Important drivers for consumer demand was remote learning and the new work-at-home paradigm. These factors drove increased demand for HP’s Instant Ink subscription print program, which had 7 million subscribers in April (up from 6 million in February). Canon’s inkjet revenues increased 5% year over year.

 

Looking ahead, all five of these vendors warned that the current quarter will be worse. This is because COVID-19’s impact will be felt across the entire quarter. Hardware, supplies, and services-related revenues will all be significantly impacted. Specifics on forward looking guidance was tempered or pulled altogether. However, the general expectation is this quarter will be the worst of it. As economies re-open, a gradual recovery will begin in Q3 and business will approach more normal conditions in Q4. It would seem the US stock market agrees with this assessment (for the moment anyway) given its performance as of late. But is it a “V-shaped” recovery or a narrow “U-shaped” recovery? We will let economists argue over that. (I suspect we will be on the other side of this crises by the time they are finished debating the issue.) Regardless, let’s hope these expectations are realized.

 

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