Amazon posts higher 1Q sales on coronavirus-driven spending, sees $4B in 2Q costs

Amazon (AMZN) reported first-quarter sales that topped consensus expectations and grew over last year, as consumers increasingly turned to the e-commerce company for deliveries of essentials amid widespread stay-in-place orders.

However, earnings came up light as Amazon incurred costs to adapt to changing consumer demands and workforce needs as the coronavirus pandemic escalated. In addition, the company plans to spend at least $4 billion — virtually all of its forecasted operating profit — on coronavirus-related expenses, which sent its stock down around 5% in after-hours trading.

Here were the main metrics from the report, compared to Bloomberg-compiled consensus estimates:

• 1Q net sales: $75.5 billion vs. $73.74 billion expected and $59.7 billion Y/Y
• 1Q earnings per share: $5.01 vs. $6.27 expected and $7.09 Y/Y

The Seattle, Washington-based company has been one of the few corporations fortified by the global coronavirus pandemic. Amazon’s extensive array of everyday goods, groceries and expedited delivery options make it a popular choice among consumers confined to their homes.

Amazon’s net sales of $75.5 billion were up 26% over last year. However, net income of $2.5 billion, or $5.01 per share, fell 30% compared to the $3.6 billion, or $7.09 per share, reported in the first quarter of 2019.

That profitability pressure is likely to increase in the current quarter, with Amazon expecting to spend heavily to protect both workers and consumers from COVID-19 exposure.

“Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit,” CEO Jeff Bezos said in a statement. “But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe.”

Bezos said the company plans to invest in a range of services, including “personal protective equipment, enhanced cleaning of our facilities, less efficient process paths that better allow for effective social distancing, higher wages for hourly teams, and hundreds of millions to develop our own COVID-19 testing capabilities.”

Those costs could contribute to an operating loss of up to $1.5 billion in the second quarter, Amazon said in its guidance — making it the first among major companies this quarter to provide forward-looking estimates.

On the high end, Amazon said it could deliver operating income of as much as $1.5 billion, or still just half the $3.1 billion it delivered in the second quarter of last year. Amazon said it expects net sales will be between $75 billion and $81 billion for the second quarter, representing growth of as much as 28% over last year.

During the quarter, Amazon hired 175,000 new workers to keep pace with orders, in a testament to the ballooning demand for products off the online marketplace.

But the company also had to alter its operations to meet consumer demand more narrowly focused on essential home goods and cleaning products, rather than the typical, broader product mix shift. The company also raised pay for many of its workers, generating additional expenses.

Shares of Amazon were up more than 30% for the year to date through Thursday’s close, making it one of the best-performing stocks in the S&P 500.

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