WASHINGTON—American companies have begun lowering their revenue and earnings estimates to reflect the potential effects on their businesses of China’s deadly coronavirus outbreak.
Nearly 40 percent of S&P 500 companies that released fourth-quarter earnings ending Dec. 31 warned about COVID-19, highlighting concerns in financial markets about the impact of the epidemic.
As of Feb. 13, the number of S&P 500 companies that conducted a fourth-quarter earnings conference call was 364, according to the data provider Factset. Of those, 138 mentioned the word “coronavirus” during the call.
Companies in the industrial, information technology, and health care sectors discussed the impact of COVID-19 more than those in other sectors.
According to Factset, nearly 4.8 percent of revenues of S&P 500 companies come from China. However, the average revenue exposure of the 138 companies that discussed the coronavirus is 7.2 percent.
So far, 34 companies have disclosed revisions to revenue or earnings estimates to reflect the loss or uncertainty arising from the epidemic.
For example, Apple Inc. expects revenue to be between $63 billion and $67 billion for the second quarter ending March 30, 2020.
“We have a wider-than-usual revenue range for the second quarter, due to the greater uncertainty,” Apple CEO Tim Cook said on Jan. 28, according to the earnings call transcript by financial data provider Seeking Alpha.
While Apple’s sales within the Wuhan area are small, retail traffic across the country has been affected by the virus, he said.
“The situation is emerging, and we’re still gathering lots of data points and monitoring it very closely.”
Cook said that there are Apple suppliers in the Wuhan area that are critical, and hence, the management team is working on plans to mitigate expected production loss.
The coffee chain Starbucks said the COVID-19 outbreak could have “a material impact” on the company’s results for the second quarter and the full year.
“Given the strength of our Q1 [first-quarter] results, we had intended to raise certain aspects of our full-year financial outlook for fiscal 2020,” Kevin Johnson, president and CEO of Starbucks Corp. said on Jan. 28 during an earnings call.
“However, due to the dynamic situation unfolding with the coronavirus, we are not revising guidance at this time,” he said.
According to Starbucks, China accounts for 10 percent of the company’s global revenues. The coffee chain announced earlier that it closed more than 2,000 stores—half of its China stores—due to the outbreak.
Walt Disney Co. also announced that it closed its parks in both Shanghai and Hong Kong due to the outbreak, which would negatively affect second-quarter and full-year results.
“The current closure is taking place during the quarter in which we typically see strong attendance and occupancy levels due to the timing of the Chinese New Year holiday,” Christine McCarthy, chief financial officer of Walt Disney, said on Feb. 4 during an earnings call.
According to the company’s estimates, she said that closure of parks in Shanghai and Hong Kong would cost in the second quarter $135 million and $40 million, respectively.
Other companies that get hit by the epidemic include Qualcomm Inc., Estee Lauder Cos., Expedia Group, Ralph Lauren Corp., and Tapestry Inc. (parent company of Coach, Kate Spade, and Stuart Weitzman).
Too Early to Tell
While many companies discussed the current or potential future negative impact of COVID-19 on their businesses, a sizable number of companies didn’t provide estimates on the financial impact of the epidemic.
“It’s too soon to see any impact. Our network isn’t that extensive in Asia,” Robert Isom, president of American Airlines, said Jan. 22 during the earnings call.
U.S. carriers including Delta, United, and American Airlines announced that they have suspended all China flights in the wake of the outbreak.
“Our guidance does not reflect any potential disruptions in our global supply chain that could result from the coronavirus,” Kelly Kramer, chief financial officer of Cisco Systems, said on Feb. 12 during an earnings call. “We will continue to monitor the situation closely.”
According to Factset, executives of 47 companies said that it was too early to measure the financial effect of the virus.
“Given the large number of companies that did not update or modify guidance due to the impact of coronavirus, it is possible that there will be an increase in the number companies issuing negative guidance later in the first quarter as these companies gain clarity on the impact of the coronavirus on their businesses,” John Butters, senior earnings analysts at Factset, wrote in a report.
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The inevitable price to pay by outsourcing to china and other low wage countries.