More profit warnings – the uncertainty among companies is growing

Dusseldorf After record net profits of 129 billion euros in the 2021 financial year, the 40 Dax companies are likely to have earned about as much in 2022. Despite rising prices, war in Eastern Europe and disrupted supply chains. The annual balance sheets will provide more detailed information in the coming weeks.

However, even before they are published, it is clear that the looming recession, high gas prices and declining purchasing power are making more companies look to the future with more caution: According to a survey by the commercial credit insurer Atradius, 59 percent of companies in the German chemical industry expect an economic downturn in this Year. In the construction sector it is 57 and in the metal sector 55 percent.

“More and more companies are struggling and are pessimistic about the future,” says Milan Knarse, partner at the auditing and consulting firm EY, “and it is difficult to predict how the geopolitical and economic situation will develop in the coming months”.

This growing skepticism has already become apparent over the past year, as surveys by EY, which are available to Handelsblatt, show: Over the course of the year there was a continuous increase in warnings of lower earnings – from seven in the first quarter to 24 in the fourth quarter.

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The number of positive upward revisions, on the other hand, declined: from 47 in the first quarter to 40 in the last quarter of the year. “The entire world is in a phase of weakness,” said the President of the Federation of German Industries, Siegfried Russwurm, with a view to the many German companies that are strong in exports.

In addition, corporate loans are becoming more expensive in view of rising interest rates for bank loans and corporate bonds, the corporations have less liquidity and are therefore postponing investments, so that increases in earnings are slowed down in the end. Ultimately, companies should prepare for all scenarios – from a prolonged crisis and recession to an upswing as early as the second half of the year.

Overall, the number of profit or sales warnings among the 160 companies represented in the Dax, MDax and SDax doubled in the past year compared to the previous year from 35 to 70. In the Dax, Covestro, Fresenius Medical Care and Adidas lowered their earnings expectations – the sporting goods manufacturer three times. There were 18 corresponding bad news in the Dax.

Despite this increase, the number of warnings is well below the previous record of 108 from 2020. At that time, the outbreak of the corona pandemic in the spring led to a number of companies cashing in on their forecasts given the unpredictable consequences.

Companies raised forecasts 157 times

It is noteworthy that in the crisis year 2022, which culminated in the sharp rise in gas prices in autumn as a result of the Russian war of aggression, an unusually large number of companies raised their earnings forecasts – despite inflation, rising interest rates and difficulties, especially in the large sales country China.

At 157, the number of upward corrections to forecasts was the second-highest level since the survey began in 2011. Linde, Mercedes-Benz, Henkel, Infineon, Deutsche Telekom and Deutsche Post, among others, raised their annual forecast due to the good development.

In the second row, for example, the supplier Vitesco increased their annual targets due to an increase in car production and the systems specialist Krones due to a good order situation.

Several reasons led to the better conditions and higher forecasts. “Many companies have earned very well in recent months and even developed better than expected,” says EY partner Knarse. “A high order backlog, persistently high prices and a remarkably strong demand until recently have resulted in a number of positive forecast corrections.”

Many companies have earned very well in recent months and even developed better than expected. Milan Knarse, partner at the auditing and consulting firm EY

Temporary supply chain difficulties, shortages and unsatisfied demand from the times of the corona pandemic had a positive effect. The car manufacturers produced fewer vehicles, mainly because demand in China collapsed.

However, due to the lack of semiconductors, manufacturers were able to raise prices and concentrated on producing high-margin large sedans instead of cheaper small cars. This resulted in rising profits and disproportionately high returns in view of the drop in sales.

That was one reason Mercedes raised its forecast over the course of the year. The focus on the brand and high-priced cars has a positive effect on the people of Stuttgart.

Mercedes production

Automakers were able to raise prices in 2022 due to the lack of semiconductors and focused on producing high-margin large sedans instead of cheaper small cars.

In addition, companies were very cautious after the outbreak of the Ukraine war in February at the latest. But when the worst fears were not confirmed, and demand remained high despite rising prices and the highest inflation since the oil price shock in the 1970s, the companies reacted with increased forecasts.

The increasing uncertainty is also reflected in the fact that only 43 of the 160 companies examined did not change their forecast at all over the course of the year. Fewer and fewer corporations are therefore able to exactly meet their own expectations.

There are essentially two reasons for this. First, there were two major, unforeseeable events in 2020 with the corona pandemic and in 2022 with the Russian war of aggression in Ukraine. They ruined plans and created new starting conditions. These got worse for many companies, but not all. Defense companies such as Rheinmetall and Hensoldt benefit from the war with higher orders.

Shareholder demands are increasing

The pandemic, in turn, gave many online companies, such as the meal kit specialist Hellofresh, a boost because physical on-site purchases became more difficult. The online retailer Zalando also benefited from the closed shops with increasing orders online – and later the tendency of many customers to shop from home rather than in the crowd.

Secondly, the forecasts are becoming more and more accurate year after year and thus also more susceptible to subsequent corrections. It is about the claims of the shareholders, the company shareholders. Based on the American model, these demand forecasts that are as precise as possible.

It is about the greatest possible transparency and about exact sales, profit and profitability margins, which are backed up with numbers. As a result, there is an increased risk that these forecasts will not materialize over the course of the year and will therefore be lowered or raised. The times when companies tell their shareholders in the annual report: “We hope to be able to increase the previous year’s result” are over.


The pandemic gave many online companies a boost.

(Photo: Hello Fresh)

In addition to increasing volatility and the need to correct forecasts, one trend remains: Shareholders react much more strongly to negative company news than to positive forecast corrections. On the day of the profit or sales warning, the share price of the respective company fell by an average of 6.1 percent in 2022. In the case of an upward correction, on the other hand, the share price rose by only two percent on the day of the notification.

One can only speculate as to why negative surprises impress the market more. The fact is, however, that the majority of analysts who update their earnings estimates week after week are always much more positive than is the case in reality.

In this respect, positive corrections by companies are often already included in the analysts’ estimates – but only rarely reduced earnings expectations. Investors, who usually follow analysts’ estimates, are therefore all the more surprised to sell when companies surprise them with bad news.

More: Now the mood is gloomy even in industries that have been booming for a long time

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