It is truly hard to believe that the end of the first quarter of 2021 is just 2 weeks away. Everyone I work with internally and externally simply can’t believe it. From a business perspective, these next two weeks are going to be very different than most ends-of-a-quarter because we are going to start dealing with the comparisons between 2021 and the pandemic year of 2020.
Most quarterly earning calls and reports follow a cadence of providing insights into the quarter that just closed and then comparing that quarter to the same quarter last year. Sometimes they will also compare the quarter that just closed to the previous quarter if it is not a seasonal type of business. A year ago, the realities and confusion of the pandemic were just starting to hit. Only essential workers were in their workplace and more that 70% of the working population was working remotely. Even though it seemed catastrophic at the time, those first few weeks of the pandemic were at the end of March, 2020 when about 85% of the first quarter results were already in the books. It wasn’t until the second quarter when the financial numbers for some businesses started to dive and for others started to accelerate.
What to expect and understand
So, this is where having strong business acumen helps to understand the situation and anticipate what may happen in the next few months. The year over year quarterly comparison is how the game is played. Since Q1 2020 wasn’t terrible, when company’s compare the year over year quarterly results, the numbers are going to look amazing. Many CEO’s and CFO’s will be looking very good with gaudy increases in sales and profits. So, expect every company that was negatively impacted by the pandemic to talk about their comeback and incredible resilience and agility of their organizations.
That’s the easy part.
The hard part of what to do with Q2 because it’s going to be tricky. For many, Q2 2020 was a disaster. Revenues off 50%-80% for most. You would think that no mater what, the second quarter of 2021 is going to be strong and again, CEOs and CFOs will be providing strong results and looking even better! But, the hard part is that they don’t want those Q2 growth numbers to look too good because there will be higher expectations in Q3 and, get this, it will be harder to show strong growth results in Q2 2022 (15 months from now) when they must show year over year performance again.
What’s going to happen is a “smoothing out” of the numbers which is a nice and politically correct way of saying don’t be surprised if Q3 and Q4 have similar and not-so-drastic accelerated growth. When you listen to your company’s earnings call, take note of the changes in end of year guidance. If those numbers are adjusted upward a couple of more times, there might be some nice smoothing going on.
What is driving the growing stock prices?
The Dow Jones Industrial Average hit 33,000 this week, an all-time high. This reflects the following which will all be central themes of the upcoming earnings calls:
- Increased profits and accelerated YOY profit growth
- Increasing revenues
- Increased net cash flows
While it hasn’t been a central theme of the three metrics stated above, the fact that operating expenses for travel, lodging, food, entertainment, meetings, insurance, etc. have been cut to zero means every dollar not spent and which was budgeted drops down to the bottom line as profit. It is hard for me to imagine most companies going back to the way it was just for that reason.
There is also a strong belief in pent-up demand for major expenditures including travel and vacations. We will most likely see this comeback in the summer, fall, and then winter with a vengeance.
What does this mean for you and your business decision making?
I think there are three significant things you need to consider if you are a business decision maker:
- Vacations – Almost the entire workforce has built up vacation time and they are going to take it. It’s going to be hard getting stuff done when every week it’s going to feel like a co-worker is out and you have to pick up the slack.
- Hiring – Is going to be harder. There will be a lot more jobs than “qualified people.” I think this is going to wake up a lot of organizations to the fact their understanding of “qualified” has a lot of flaws and we will move forward with better diversity.
- 2022 Budgets – Come the fall, when budgets are going to be set for 2022, I think it’s going to get tough. For reasons stated earlier about the upcoming earnings, a lot of attention will be given to 2022 budgets which means get your big deals in place by September!