COVID-19, the disease caused by the new coronavirus that was first identified late last year in Wuhan, China, is becoming a dominant theme in the earnings releases and conference calls of S&P 500 companies as investors press for answers on how it will impact their financials.
A FactSet search of the 364 earnings call that were held in the period stretching from Jan. 1 through Feb. 13 found 38% included the term “coronavirus” at least once. The industrial, IT and health-care sectors accounted for the highest number of companies discussing the topic, according to FactSet.
While many were asked to quantify the negative impact on their businesses, 34% said it was too early to say and did not include the virus in their financial guidance. As a result, “it is possible that there will be an increase in the number of companies issuing negative guidance later in the first quarter as these companies gain clarity on the impact,” FactSet senior earnings analyst John Butters wrote in written commentary.
This is what companies have been saying:
• Apple Inc. is not expecting to meet second-quarter financial guidance because production has slowed or been halted in China due to the COVID-19 outbreak. “Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated,” the company said in a statement on Monday. Apple generates about 15% of its revenue from China, and many of its products are manufactured there.
• Boston Scientific Corp. , which has a $600 million business in China, is expecting a “negative first-half impact” on expectations that Chinese patients will push back elective medical procedures during the outbreak. The company lowered its quarterly sales guidance for the first quarter of 2020. The device maker now anticipates a “preliminary negative sales impact estimate of $10 million to $40 million.”
• Capri Holdings Ltd. , which owns luxury brands Jimmy Choo and Versace, said it now expects annual revenue of $5.65 billion and adjusted earnings per share of $4.45 to $4.50 as the virus eats into sales. That’s below the FactSet consensus for revenue of $5.78 billion and per-share earnings of $4.87.
• Carnival Corp. said there could be a fiscal 2020 earnings-per-share impact of 55 cents to 65 cents if all operations are suspended in Asia through the end of April. If that comes to pass, according to Carnival, there would be a material impact on the business from suspended cruises in Chinese ports; cancellations in other parts of Asia; and the impact on bookings, which is determined by the length of time that an event influences travel.
• Coca-Cola Co. CEO James Quincey said the outbreak of severe acute respiratory syndrome (SARS) in 2003 and 2004 was less of a concern than this coronavirus. The Chinese market makes up 10% of Coca-Cola’s global volume. “China’s economy was in a different place when SARS happened,” he said. “It’s worth noting that China’s economy is [now] much bigger, and this could become more connected to the rest of the world.”
• The Estée Lauder Cos. said the third quarter will be most impacted by the sales decline of luxury beauty products in China. The company updated its sales outlook for the second half of the year, saying it now predicts an increase of up to 1%, compared with the same period a year ago.
• Expedia Group Inc. is expecting a $30 million to $40 million impact on adjusted EBITDA in the first quarter as a result of the outbreak. It also expects “some impact beyond [the first quarter] in 2020 as well,” CEO Barry Diller told investors. “But the exact amount will depend on how long it takes for travel trends to normalize.”
• General Mills Inc. said half of its Häagen-Dazs shops in greater China are closed, and the shops that remain open have “severely restricted hours.” Greater China makes up 4% of General Mills’ net sales, 40% of its sales in the region are at Häagen-Dazs shops and other restaurants. The company told investors it can’t yet share how the closures will affect its numbers for fiscal 2020.
• Gilead Sciences Inc. is working with Chinese authorities to test its investigational antiviral remdesivir as a treatment for people with the new coronavirus. The drug maker plans to conduct a randomized, controlled trial in China as part of those plans, saying that remdesivir has shown “in vitro and in vivo activity in animal models against the viral pathogens” Middle East respiratory syndrome (MERS) and SARS, both of which are also coronaviruses.
• Hasbro Inc. continues “to have office and third-party factory closures” in China as a result of the outbreak. The company said that China is responsible for about two-thirds of its global sourcing. “The biggest unknown right now is how quickly the manufacturing factories can get their production ramp back up,” said Hasbro CFO Deborah Thomas. “Travel is limited, [and] places are still closed.”
• Hilton Worldwide Holdings Inc. said about 150 hotels, totalling approximately 33,000 rooms, are closed in China as a result of the coronavirus outbreak.
• HSBC Holdings PLC expects a weaker first-half performance in 2020, due to the downturn in Hong Kong and virus-related credit losses in the first quarter, it said. “The most extreme downside scenario in there I would say makes an assumption that the coronavirus is still continuing in the second half of this year,” an executive said on an earnings call. “If you look at that and that was to become the central scenario, there would be about $600 million of additional loan losses provisions required.”
• InterContinental Hotels Group PLC said 160 hotels are closed in China or closed to new guests. The company’s fee business is expected to take a $5 million hit in February in China, as a result of the outbreak. Its Chinese operations make up less than 10% of group operating profit. CEO Keith Barr told investors that the postponement and cancellation of conferences will have an impact on its operations, too. “What I saw during H1N1 and other times in China, the key thing to remember is the Chinese government’s ability to stimulate economic growth and activity is unlike any other country,” he said, on an earnings call.
• IQVIA Inc. , which runs clinical trials, including in China, said it expects a $25 million impact in the first quarter as a result of the outbreak. “The patients who are enrolled in a trial are simply not going to visit the hospitals where all the sites are in China because that’s kind of the more dangerous spot right now,” CEO Ari Bousbib told investors.
• Nike Inc. said that it has closed about half its stores in China, while the remaining stores are reporting lower-than-expected retail traffic. The athletic-apparel maker said it plans to provide an update about the impact of the virus on its third-quarter earnings call.
• PVH Corp. , owner of the Calvin Klein and Tommy Hilfiger brands, said that 20% of its global sourcing comes from greater China, which also made up 7% of its 2019 revenue. Most PVH-owned stores in China remain closed. Still, the company reaffirmed its adjusted earnings-per-share guidance of $1.79 for the fourth quarter and at least $9.45 for the full year.
• Ralph Lauren Corp. said fiscal 2020 sales could be hurt by up to $70 million and operating income in Asia could take a $35 million to $45 million hit as a result of the outbreak. Two-thirds of the luxury retailer’s mainland China stores have been closed for a week, and about half of its stores were closed another week.
• Royal Caribbean Cruises Ltd. canceled 18 cruises in Southeast Asia and modified several itineraries as a result of the virus. The cruise-line operator said it expects an impact of 65 cents per share on its 2020 financial performance. If it has to cancel cruises in Asia through April, doing so would impact the company’s 2020 financial performance by an additional 55 cents a share.
• TripAdvisor Inc. said it may see a low-single-digit percentage impact on its financial results. “We do see some unexpected or new cancellation levels in Asia, but we’re not that exposed to Asia as an overall part of our business,” CEO Stephen Kaufer told analysts.
• Tyson Foods Inc. has restarted some operations in China, but CEO Noel White said the company will face short-term impacts from the outbreak, even if the fallout eventually helps support government efforts in China to “decrease” the number of wet markets. Researchers believe that the virus, common to bats, may have been transmitted to humans via another animal sold at the Huanan Seafood Wholesale Market, a wet market in Wuhan. “We’ll continue to see modern grocery continue to grow in China,” White said. “The combination of [African swine fever] and coronavirus would expedite that transition.”
• Under Armour Inc. expects to lose between $50 million and $60 million in sales to the coronavirus outbreak.
• VF Corp. , which owns the sneaker brand Vans, has closed 60% of its owned and partner stores in China. The shops that have remained open are reporting “significant” declines in retail traffic.
• Visa Inc. said it’s too early to tell how the outbreak will impact the company. “If planes are not flying in and out of China, if hotels are not being filled, which they’re not at the moment, and if the supply chains are being impacted, which I suspect they are, there’s going to be some impact,” a Visa executive said at an investor day. “It’s just going to depend on how long this goes on.”
• Walt Disney Co. said if its shuttered Shanghai and Hong Kong theme parks remain closed for months, it would shave $175 million off operating income in the current quarter. Disney’s movie-studio business could also take a hit, as cinemas are closed in China and Disney is preparing to launch the live-action “Mulan” reboot in March.
• Yum China Holdings Inc., which operates fast-food brands including KFC and Pizza Hut, has closed 30% of its restaurants. For those that are still open, same-store sales have declined up to 50% since the Lunar New Year. The outbreak is causing “significant interruption,” said Yum China Holdings CEO Joey Wat. Pizza Hut sales have struggled more than those of KFC, which has a stronger delivery business, as more Chinese customers are opting for takeout at home, the company said.
Source: MarketWatch
