OXY Occidental Petroleum Corporation

By Thomas Gryta and Jennifer Maloney 

The rapidly spreading coronavirus has reached every corner of the U.S. economy, upending the jobs of Seattle taxi drivers, Texas oil workers and Wall Street traders -- and nearly everyone in between.

The virulent invader, which swept through Asia and Europe, is leading many U.S. businesses to hoard cash, pare spending and rethink how they operate without knowing how long the troubles will last. Some that lost business may never get that revenue back. Thinner profit margins and a focus on cost cutting mean some firms may lose key workers, vendors and the ability to invest for the future.

The pain is acute at companies with high levels of debt or that were struggling before the outbreak. Already, shale oil driller Occidental Petroleum Corp., laden with debt from its $38 billion purchase last year of a rival, has slashed its dividend and spending plans. Boeing Co., wounded by the grounding of its 737 Max jet, has frozen its hiring and maxed out its credit lines.

"If this lasts a few months, we will start seeing retail casualties pile up," said Jerry Storch, the former chief executive of Toys "R" Us Inc. and Hudson's Bay Co.

The respiratory illness, which first paralyzed many of China's factories, has now frozen businesses across industries. Airlines have cancelled thousands of flights. Americans are now expected to buy 1.5 million fewer cars this year, one analyst predicted. Major sports leagues have suspended play indefinitely, dealing a blow to venues and broadcasters.

"I'm tossing and turning at night about it," said Aron Ain, chief executive of Kronos Inc., a software maker with 6,000 employees. "I'm uncomfortable because I haven't been through it before."

The spread of the virus has led to a nearly endless stream of hard-to-answer questions from Kronos staff, like whether or not to travel to client meetings. Some clients are starting to put off purchasing decisions, Mr. Ain said, adding that, a week from now, it could be more.

There have been few mass layoffs so far in the U.S., which before the outbreak had the lowest levels of unemployment in decades. During the 2008 financial crisis, nearly six in 10 companies stopped hiring or decreased staffing, while 35% froze pay, according to executive search firm Korn Ferry.

"Cutting muscle and hurting your ability to recover is far more damaging to an organization than limping along with a couple of quarters of extra expense," said Bob Wesselkamper, a vice chairman at Korn Ferry.

Declared a global pandemic on Wednesday, the new coronavirus had infected more than 125,000 people in more than 100 countries. More than a third of the infections globally have been outside of China. They include a Fiat Chrysler Automobiles NV worker at an Indiana plant and the CEO of British telecom giant BT Group PLC.

Inside China, the rate of infection has slowed after the government locked down much of the country for more than a month. Factories are restarting production and workers are returning to their jobs. Apple Inc. reopened all 42 of its stores in China on Friday.

Businesses are adapting to the rapidly changing public-health guidance, sending workers home, canceling events and switching to teleconferencing. BT said its chief executive, 53-year-old Philip Jansen, has self-isolated and will work remotely. It will deep-clean its London headquarters. Fiat Chrysler said it would quarantine some workers from the Indiana factory but the transmission plant would continue normal operations.

U.S. consumer spending was strong before the virus surfaced, and not all business activity has stalled. PepsiCo Inc. struck a nearly $4 billion deal this week to acquire the maker of Rockstar energy drinks. Insurance broker Aon PLC agreed to buy a rival for nearly $30 billion, the biggest deal of the year on one of the wildest days for markets.

Just as households are stocking up on supplies and preparing for an uncertain future, companies are making similar moves by making sure they have credit lined up and cash they may need, said Gregory Daco, chief U.S. economist at Oxford Economics. "The shock has morphed in the last couple of weeks," he said.

Here is a look at how the virus is rippling through every corner of the economy:

Energy

The oil and gas industry is facing twin shocks: a demand drop caused by coronavirus, and a supply glut caused by overproduction. A spat between OPEC and Russia over production worsened the situation last week, sending U.S. benchmark prices crashing to $30 a barrel. The result is that companies -- especially many American shale drillers who were already on the ropes -- now face a serious threat to their survival in the months ahead. Companies including Occidental Petroleum Corp., Apache Corp., Matador Resources Co. and Marathon Oil Corp. have begun belt tightening, with many slashing spending and reducing drilling rigs. The idling of rigs results in less work for the contract crews that operate them, rippling through the economy. It also eventually leads to reductions in overall production.

-- Miguel Bustillo

Airlines

A fear of flying has taken hold, and airlines are preparing for the prospect that it could depress demand for months. Carriers slashed scheduled flights, froze hiring, and offered employees unpaid time off in an effort to conserve cash and prevent layoffs. A trade group estimated a potential loss of $113 billion in global passenger revenue, and the outlook worsened after the U.S. announced aggressive new restrictions on travelers from Europe. "The speed of the demand fall-off is unlike anything we've seen -- and we've seen a lot in our business," Delta CEO Ed Bastian wrote to employees Friday. United Airlines Holdings Inc. President Scott Kirby offered a "dire scenario" United is using for planning purposes: Revenue drops 70% in April and May, 60% in June and remains depressed the rest of the year.

-- Alison Sider

Consumer products

Makers of everything from hand sanitizer to cleaning products to baby diapers are racing to increase production as they work with U.S. retailers to keep shelves stocked. Clorox Co. is uniquely advantaged as a major producer of cleaning products that both sells and produces most its products in the U.S. For truly global consumer-products companies like Procter & Gamble Co., for which China is the second biggest market and home to hundreds of suppliers, the upside of increased sales could be well outweighed by the impact production disruptions in China and slowed consumer spending globally. Another challenge is for companies like Amazon.com Inc. and eBay Inc. to control price gouging by third-party sellers.

-- Sharon Terlep

Sports

Three big sports leagues -- the National Basketball Association, National Hockey League and Major League Baseball -- all suspended their operations, aiming to protect fans as well as players. The leagues will lose revenue from ticket sales, but the biggest impact may be on media partners. Sports TV networks including Walt Disney Co.'s ESPN, AT&T Inc.'s Turner, Comcast Corp.'s NBC Sports and Fox Corp.'s Fox Sports will take a hit on advertising sales. The NBA alone brought in nearly $1.6 billion in ad revenue in the last season, according to research firm Kantar. And networks may be on the hook for billions of dollars in rights-fees obligations even if games aren't played. The leagues and networks are hopeful the break is just that -- a break -- and that they'll be able to resume their seasons.

-- Amol Sharma

Movies

Hollywood studios will likely feel the sting of postponing major movie releases for several months, if not years. Delaying a $200 million film like Walt Disney Co.'s live-action remake "Mulan" has long-term ramifications not only for the studio but for the industry as a whole. Studios typically plan years in advance to decide when to release movies, weighing both the time of year and what the competition has slated. As the number of delayed releases grows so too do the chances that other films will suffer. MGM Holdings Inc. moved the release of its James Bond film "No Time to Die" to November from April, a month already chock full of big franchise films. The coronavirus scare has also caused studios to delay the production of big-budget films like Paramount Pictures "Mission: Impossible 7," which could lead to a drought in future years.

-- R.T. Watson

Hotels

Conference cancellations and a pullback in business travel are dragging down revenue in the hotel industry, which just suffered one of its worst weeks in years. Some operators lowered room rates, a move they usually try to avoid because it can be hard to push rates up again even if the outlook improves. Historically leisure travelers are quicker to return, as they did after the Sept. 11 terrorist attacks and the 2008 financial crisis. Business travel typically takes longer to snap back, as companies want more clarity before approving most trips again. It's also possible that some business never comes back if fears about future virus outbreaks -- along with emerging environmental concerns about plane travel -- prompt more businesses to rely increasingly on teleconferencing.

-- Craig Karmin

Pharmaceuticals

The biggest impact to the pharmaceutical industry is on its supply chain, partly because of how much medicines rely on raw materials -- known as active pharmaceutical ingredients -- from outside the U.S. One drug has already gone into shortage because of the outbreak and industry observers are worried more could follow. Most vulnerable are generic drugs, which make up some 90% of the medicines taken by Americans. Some of the biggest drugmakers, AstraZeneca PLC, Merck & Co. and Pfizer Inc. have said recently the epidemic could affect supplies for certain drugs or sales, depending on how long the pandemic lasts. But the pandemic is also an opportunity for many companies that are racing to develop drugs and vaccines.

-- Jared S. Hopkins

Grocers

Supermarkets face opportunity and peril as more people stock up on supplies and hunker down at home. They are rushing to meet the rising demand for sanitizers, household goods and shelf-stable foods while also rationing how much customers can buy. Kroger Co. and Albertsons Cos., the nation's biggest grocers, are limiting the purchase of cleaning products while regional chain Price Chopper is looking for new suppliers that can provide more toilet paper. Many of the grocers are also expanding delivery and pick-up options as consumers begin avoiding stores altogether. "You plan for the worst and hope for the best," said Gordon Reid, president of Stop & Shop chain. "It's important that people can get access to food and products they need."

-- Jaewon Kang

Gambling

Las Vegas casinos are experiencing a financial hit as people grow fearful of public gatherings and conventions are canceled. The emerging U.S. sports-betting industry faces an even more brutal test: how to survive without sports. The NCAA's cancelation of its March Madness tournament -- and decisions by the NBA, MLB and NHL to suspend their seasons -- wiped away weeks of potential profits for sportsbooks. "This is probably a contingency that most sports-betting operators have not prepared for," said Chris Grove, an industry analyst with Eilers & Krejcik Gaming. Gambling stocks have declined an average of 42% since Feb. 19, far steeper than the 22% they fell in the three weeks following the Sept. 11, 2011 terrorist attacks, according to JP Morgan analysts.

-- Katherine Sayre

Luxury goods

The new coronavirus is rippling through the most important world markets for luxury brands. First it hammered demand from Chinese shoppers as the epidemic took hold in that country. Louis Vuitton, Gucci, Hermès and other megabrands were forced to shut dozens of stores in mainland China, Macau and Taiwan, while China's well-heeled shoppers stayed home rather than splurging during trips to European fashion capitals. Then, as the virus spread to Italy, it landed in the industry's most important manufacturing hub. A lockdown decreed by the Italian government tested the ability of brands to produce their handbags, clothing and accessories. Now, the virus's emergence in the U.S. is threatening to sap demand in another of the industry's biggest markets.

-- Matthew Dalton

Rideshare/Food delivery

Ride-hailing or mobile food-delivery companies like Uber, Lyft, DoorDash and Postmates have resisted providing their drivers with benefits like paid sick leave and health insurance. But now the health and safety of those drivers is central to the survival of firms that connect riders with transportation or consumers with foods via an app. Many drivers are demanding paid sick leave so they avoid risking exposure to the new coronavirus. The biggest companies have said they will compensate drivers infected or quarantined by a public health agency. Postmates is supporting health check-ups. There may be no going back to the idea that these apps and their drivers are separable.

-- Elizabeth Wollman

Retailers

The retailers that are likely to fare better as Americans adjust to the current outbreak are those that invested in online logistics or have the ability to serve shoppers safely if the illness becomes widespread. Stores could limit direct interaction between shoppers and staff by bringing more online orders to customers, adding temporary pickup counters or shifting checkout procedures, "Which stores can pivot the way they operate so people still want to shop there?" said Brandon Fletcher, retail analyst at Bernstein. The good news is discretionary spending is strong, and retail executives haven't yet noted any dip in store traffic due to people staying close to home. The disruption is likely to lead to some product shortages later in 2020.

-- Sarah Nassauer

Education

Hundreds of schools are telling students to leave campus or finish their classes online. Local restaurants and shops that rely on students for business will feel an immediate hit. Longer-term effects aren't entirely known yet. Some wealthier universities, including Harvard and Princeton, have announced plans to pro-rate or reimburse room and board charges for the time students are off campus. But not all are so flush as to be able to make that move painlessly. Schools with limited liquidity--those reliant on tuition revenue or endowment draws to fund operations--are at particular risk amid the potentially prolonged financial uncertainty, according to Fitch Ratings. Next year's enrollment is also a question mark after schools halted international recruiting and on-campus admissions events.

-- Melissa Korn

Health insurers

As more people need treatment for Covid-19, health insurers will have to write many of the checks. Several big insurers have played down the potential impact, saying they've seen little effect so far and will raise premiums to cover their costs if the new illness persists. But the biggest player, UnitedHealth Group Inc., warned it expected a dramatic increase in the number of confirmed cases, and the extent of the outbreak wasn't yet clear. And an analysis by S&P Global Ratings suggested that if there's a severe epidemic, the industry could be in the red for the year.

-- Anna Wilde Mathews

Manufacturers

U.S. manufacturers are facing a bleak 2020. Most already had lower demand from key customers, including from autos and the energy industry. That weakness is now gaining momentum from the new coronavirus' disruptive effects on global travel, commodity consumption, consumer spending and factory supply chains. Economists now predict that U.S. industrial output will turn negative this year for the first time since 2016, after initially anticipating modest expansion from the 0.8% growth in 2019. "That tentative improvement that we had seen around the turn of the year will quickly fizzle out," said Andrew Hunter, senior U.S. economist Capital Economics in London.

-- Bob Tita

Concerts

As the concert industry suspends all major shows around the world through the end of the month, executives, agents and promoters remain uncertain about the extent to which the novel coronavirus will dent the live music business this year. But many in the industry remain optimistic about long-term prospects. Analysts say Live Nation Entertainment Inc., the No. 1 concert promoter, had been on track for its biggest year ever as artists rely on touring for most of their income and fan demand--and willingness to shell out for record-high ticket prices--has been on the rise. "The only thing I'm confident about is when the virus dies off, artists will still need to tour and fans will still want to see shows," said Brandon Ross, an analyst at LightShed Partners.

-- Anne Steele

Autos

The auto sector, already battered by a collapse in China car sales, is girding for trouble in the world's most lucrative market: the U.S. The American car buyer has buoyed the bottom lines of global auto makers for years with a willingness to spend ever-higher sums on new vehicles, in near-record volumes. Analysts had expected much the same for 2020 -- until this week. On Wednesday, Morgan Stanley analyst Adam Jonas cut his U.S. sales forecast to 15.5 million, from 16.5 million -- a drop he said would shave $10 billion in pretax profit. By Friday though, Mr. Jonas asked in an investor note whether his reduced forecast went far enough. "If, in the aftermath of the Covid-19 pandemic, the U.S. economic landscape is substantially different ... then where do we arrive once [auto sales] recover?"

-- Mike Colias

(END) Dow Jones Newswires

March 14, 2020 00:14 ET (04:14 GMT)

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