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Amazon predicts $4 billion in Covid-related costs next quarter

5 years ago
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Amazon’s fourth-quarter guidance for operating profit was so wide you could drive a delivery truck through it.

The online retailer said in its earnings report on Thursday that operating income for the last three months of the year will be between $1 billion and $4.5 billion.

That incorporates roughly $4 billion of costs tied to Covid-19 for things like testing, cleaning, extending employee breaks and social distancing measures.

That $3.5 billion difference between the high and low end of the guidance range leaves a lot for investors to consider. Last year, Amazon baked a $1.7 billion gap into its fourth-quarter operating profit forecast. In 2018, the difference was $1.5 billion.

Chief Financial Officer Brian Olsavsky said on the call with analysts that every fourth quarter carries uncertainties because of the holidays and volatile weather patterns.

It’s by far the biggest period of the year for the company by revenue, and this year is expected to be Amazon’s first quarter ever to surpass $100 billion in sales.

But the end of 2020 is particularly unpredictable. Prime Day, Amazon’s annual mega-shopping event, was pushed back from July to October this year as the company adjusted to the strains of the coronavirus.

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The election is next week, and control of the White House and Senate are up in the air. Facebook and Walmart are even predicting possible civil unrest around the election results, which may take a long time to be finalized.

The economy grew at its fastest pace ever in the third quarter, but coming off the worst quarter in history.

“There’s a whole host of conditions that generally come to bear in Q4,” Olsavsky said. “I think the fact that Covid is dwarfing all of those is causing a lot of uncertainty.”

Amazon shares dipped almost 2% in extended trading even though the company reported better-than-expected revenue and profit. Amazon said sales in the fourth quarter will be between $112 billion and $121 billion, compared to analysts’ average estimate of $112.3 billion, according to FactSet.

Analysts were expecting operating profit of $5.8 billion.

Olsavsky reeled off a number of areas where Amazon is investing, primarily to meet consumer demand. The company continues to open up facilities and bolster its transportation capacity. It’s also rapidly hiring, bringing on 100,000 people in October alone.

He said Covid-related costs will rise from $2.5 billion in the third quarter to $4 billion in the fourth period.

There were also savings, including $1 billion on travel so far this year and lower marketing expenses, Olsavsky said. But they’re not enough to offset the added costs, he added.

“Once the pandemic is over and hopefully that’s soon, these should be costs that don’t recur,” Olsavsky said.

Source: cnbc
Via: norvanreports
Tags: AmazonCovid-19 related costsFacebookfourth quarterWalmart
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