The Shape of Recovery: An Economic Crisis Without Modern Precedent

With tens of millions out of work and billions invested in government relief packages, Federal Reserve Chair, Jerome Powell, commented this week that the United States was experiencing an economic crisis “without modern precedent.” Powell’s comments hinted that recovery still remains uncertain and may “come more slowly than we would like.”

Amidst this uncertain backdrop, everyone is grasping for answers. Pulling on commentary from ‘08 and today, it’s clear that companies are talking about the shape of recovery at record rates. AlphaSense’s AI technology picks up on nuances in human language found in SEC filings, event transcripts and thousands of premium business documents in real-time across the entire market, by industry, or watchlist. Start your free trial of AlphaSense now or login to your account.

Executive commentary on curve shape has reached an all-time high, far exceeding the ‘08-’09 financial crisis. The uncertainty surrounding how to model has led hundreds of companies to withdraw guidance projections this year.

 

Comparing the Great Recession with today, companies are taking slightly different stances on the shape of the recovery curve. While in ‘08-’09, companies were talking about a V-shaped recovery nearly 60% of the time, today’s uncertainty is reflected in a higher percentage of mentions of a U-shaped recovery. In fact, companies are often commenting on the shape of recovery, mentioning multiple shapes simultaneously, or dodging the recovery shape question altogether and leaning into the uncertainty of the current moment.

 

Recovery Mentions in Q1’20 Earnings Call Transcripts:

Alcon – May 13th

In this uncertain environment, our customer relationships, decades-long experience, financial resources and the unparalleled commitment of our associates give us confidence in our ability to weather today’s challenges. As I mentioned in my opening comments, we enjoyed tremendously positive market fundamentals in this business. I don’t know whether the shape of this recovery would be V-shaped or U-shaped or W-shaped, but what I do know is that at some point, this will end.

 

Rio Tinto – May 12th 

In terms of recovery, many predict either W or V-shaped economic recovery. Although to be honest, it’s just too early to tell. And we have prepared for you a range of different scenarios. We believe 3 key factors will shape any recovery scenario. First, the fear factor. Much will depend on how society choses to respond, especially people’s willingness to get back to work during the health crisis. Number two, the effectiveness of the health measures put in place, including the potential introduction of a vaccine. And third, the effectiveness of economic stimulus to encourage consumer spending and business investment. What is clear is that regardless of the shape of the recovery, the world will see slower GDP growth and trade impacts, both key drivers of the mining industry.

 

Deutsche Post – May 12th

Answer – Neil Glynn: Okay then. And just actually, Frank, just to follow-up on that. The question was also trying to just touch on the prospect of pent-up demand that isn’t actually currently being satisfied. Do you feel that a lot of your customers are waiting for the crisis to pass to really then ramp up activity which might help a recovery in trade flows in the second half at all?

Answer – Frank Appel: Yes, I think so. They are all waiting and hoping. And it’s too early to judge if we really see a V-shaped recovery. We — in China, we saw a V-shaped recovery. Will that happen in Europe? It’s too only to judge. And it might be different by industry, but there is definitely one scenario is that we will be very much back to normal in second half. And then we are more looking in how can we get more capacity for — of fulfilling the needs of our customers

 

Shopify – May 6th

The headwinds are obviously the uncertainty of COVID and how it plays out, how it impacts the economy and unemployment, in particular. The impact of businesses and consumer spending isn’t unknown the further we go out in time. And the degree that off-line to online continues to offset those economic headwinds is uncertain. Like most companies, we’re looking at both the U-shaped recovery and an L-shaped recovery. The U shape is a pretty significant downturn in the economy over the next couple of quarters, followed by a fast recovery. In that case, that’s really good for most merchants in a recovering economy. We think that plays well broadly. And we expect all of our merchants will benefit from the new purchasing habits and norms that started during these lockdowns.

In the L-shaped recovery that we’re looking at, there’s a pretty sharp downturn in the next couple of quarters, followed by a much slower recovery well into 2020. In that case, it probably means that COVID is continuing to raise its ugly head. Online remains incredibly critical to merchants, and we expect those merchants who are selling nondiscretionary items on the platform, like food, beverage, health care items, will continue to increase as a percentage of our GMV. So we step back and none of these economic scenarios is great from an overall perspective, but we do think that Shopify’s tailwinds will benefit us in any economic scenario. I just want to add that we’re well capitalized to weather any of these economic scenarios with a strong balance sheet, and we will continue to invest in those key areas that will benefit our merchants and help us come out on the other side stronger.

 

Visa Corp – April 30th

In terms of modeling revenues, I mean, we’ve given you the most up-to-date information as to what the trends are. So as we look at it, it all depends on do you think where we are is the trough, when do you think we will start to recover from that trough, and then what is the nature of the recovery going to be. Is it going to be a sharp V-shapes recovery? Is it going to be more like a U-shaped recovery as people talk about, where it’s a slow start and then picks up steam? Or is it fits and starts, where you get some recovery, then some stabilization and then another recovery and some more stabilization? And as you saw, I mean, this varies across categories and it does vary across countries. So there’s a lot of variables here, which is why we’ve chosen not to give you any kind of specific forecast. We’ll wait and see.

 

ADP – April 29th

If I were — if we had to make a bet today, we would say that it’s not going to be a V-shaped recovery, and it’s probably not going to be U or an L, but it’s going to be some other kind of shape where we obviously already had the precipitous decline. We’re already seeing some signs of some stabilization. So we have metrics that we track like in our HR systems of our clients. For example, new job postings or number of screenings that are done, like background checks, and some of those metrics have actually begun to stabilize. So I think we — we’ve had the abrupt drop. Another question is the recovery. It feels like that recovery will be not a V, but not an L. And so the difference between a V and an L is the checkmark, like I think some people are out there quoting. By the way, we have an economist on our Board, and he referred to it as the Nike swoosh, but that’s probably a copyright or trademark violation, so I won’t use the Nike swoosh. But you get the idea, abrupt drop and, hopefully, a climb back up over some period of time. Hopefully, that climb is over the course of 3 to 6 months and not over the course of 12 to 18 months.

 

Canadian National Railway – April 27th

Answer – Ravi Shanker: JJ, maybe a question for you. As you said on the call, I think the structural outlook is still pretty good and you guys expect a good rebound year in 2021. Can you share the thought process behind pulling the 3-year guidance in that case? I mean, do you expect more of an L-shape recovery than a V-shape? Or kind of, what does the long-term outlook look like?

Answer – Jean-Jacques Ruest: Yes. So there could be many types of recovery out there, V-shape, U-shape, or a long, slow one. So I think the financial market might be a V-shape because people will go on expectation.

 

CSX Corp – April 22nd

Due to the uncertain economic environment, and this should be of no surprise to anyone, we are withdrawing our guidance for the year. The potential range of outcomes for both production and demand as well as the potential shape of the recovery are too wide to predict at this time. We are constantly assessing the economic situation and will respond like we always do, by taking appropriate steps to control costs.

 

Coca-Cola – April 21st

Answer – Dara Warren Mohsenian: Guys, I hope you all are well. James, I just want to press a bit more on Steve’s question, and I know it’s hard to answer. But if one sort of makes the assumption that government-mandated closures and the social distancing is oh by the end of Q2, it doesn’t reemerge, this disease, in a major way this summer. Could you just give us some thoughts on the pace of recovery you’re expecting on your business as you look out over the next few quarters? And I’m trying to sort of separate out the direct social distancing impact more from the secondary economic impact as we look going forward. Is it more of a V-shaped recovery in your mind for your business or U-shaped or even L-shaped as we look through year-end 2020?

And then just taking a step back, thinking about 2021, obviously you’re not giving expectations any time soon. But again, assuming the social distancing doesn’t reemerge in a big way in the winter, how confident are you that whatever the volume degradation ends up being in 2020 is mostly recovered in 2021? Is it most of it? Is it hard to imagine a lot of that comes back? Just conceptually, how do you think about these things longer term?

Answer – James Robert B. Quincey: Sure. I would love to be able to tell you there’s an answer to that question, but there isn’t.

 

Citigroup – April 15th

Answer – Michael L. Corbat: Sure. So I think, as Mark described, the way we thought about — you saw us kind of put our balance sheet to use, and you saw the CET1 move from the 11.8% to the 11.2%, clearly leaving us lots of room, lots of buffer. And again, we’re early in this. We don’t know and — where this will go, but our gut or how we’re thinking about this is this recovery is going to be uneven. I would say that, as a team, we’ve pretty well discounted a uniform v-shaped recovery. The question is it U-shaped, is it W-shaped or parts of it L-shaped. And I think we want to retain a lot of flexibility and capacity to be able to step into the situations that count.