By Paul Ziobro and Sharon Terlep 

Companies from FedEx Corp. to Facebook Inc. are finding that more business isn't always good for business when it comes to coronavirus.

The pandemic is driving demand for retailers, consumer-products companies and delivery firms as consumers adjust to a homebound, stock-up lifestyle. But that demand is forcing companies to spend more to manage the spikes as more profitable business lines dry up.

Retailers are increasing pay for cashiers and other workers so they can sell more toilet paper, water and other essentials, but apparel and other items that help propel profits aren't moving. Makers of household goods like Colgate-Palmolive Co. and Procter & Gamble Co. are selling out quickly of cleaning products, while higher-margin beauty supplies face slack demand.

Traffic is soaring on Facebook's social-networking platform, though it's coming during a pullback in online advertising. The story is similar for news organizations, which are seeing an increase in readership but a drop in ads. Amazon.com Inc. is getting a surge of new business as store closures move more shopping online, but the e-commerce giant is spending hundreds of millions of dollars to hire additional workers and pay existing workers extra.

Delivery companies like FedEx and United Parcel Service Inc. are experiencing a Christmas-like boom in home deliveries, while shipments to business, which have closed by the thousands on government orders, have deteriorated. Business-to-business shipments are down 3% through the first three weeks of March, while residential deliveries are up 7.2%, said ShipMatrix Inc., a software provider that analyzes shipping data. BMO Capital Markets estimates business-to-business shipments could decline up to 25% for months.

Delivering to homes is generally less profitable because drivers ferry fewer packages across many more stops.

Mid-March is normally quiet on New York's Shelter Island. On most days, a single UPS package-car driver is able to handle all deliveries to the year-round residents. If there are too many stops, though, a second driver, David Carew, helps out. He takes a late-afternoon ferry over to the island, situated between two forks at the eastern end of Long Island, and takes on some of the deliveries.

Last week wasn't like most days. As city dwellers flocked to summer homes seeking refuge and space, four UPS cars traversed the island daily, delivering food and essentials from retailers like Costco Inc. and Target Corp., as well as items like trampolines and home gyms to help fill the days.

"It's nothing like I've ever seen in my career," the 40-year-old Mr. Carew said.

Some stops have vanished. The Tanger Outlets in Riverhead, N.Y., is closed, and drivers who tended to those stores are now deployed elsewhere. In Manhattan, where package cars typically line up outside office buildings, volume has slowed to a trickle.

FedEx and UPS workers could face layoffs if the flow of packages slows further. Teamsters leaders have told UPS workers that there could be job losses during the economic slump. Some of the FedEx Ground division's contractors have laid off delivery drivers.

"We are flexing resources to meet changing demands on a daily basis across the air, freight and ground parts of our network," a UPS spokesman said.

A FedEx spokeswoman said the impact from the pandemic affects each contractor differently, depending on the location, government restrictions and types of businesses served. The majority handle both commercial and residential customers, which allows them to adjust their operations based on how the flow changes.

Procter & Gamble can't make toilet paper fast enough, and demand for many of the company's other products -- from Dawn dish soap to Bounty paper towels -- is surging.

Investors are taking note. Shares of P&G have fallen 12% since Feb. 20, when markets began to tumble, while the S&P 500 has dropped twice as much in the same time. Shares of P&G rivals Colgate Palmolive and Kimberly-Clark Corp. also have performed far better than the overall market.

"It's nice, but a lot of it is just pantry loading," SunTrust analyst Bill Chappell said, referring to the phenomenon of consumers stocking up on items, only to halt purchases down the road. Analysts anticipate makers of household staples will see a sharp decline in sales of items that have been quickly selling out in recent weeks.

Toilet-paper sales doubled in the four-week period that ended March 21, compared with the same time a year ago, according to Nielsen. Sales of paper towels and dish soap rose 80%, while multipurpose cleaners are up 150%, and bath and shower soap sales doubled.

Another issue for P&G: Popular staples aren't nearly as profitable as products like its high-end SK-II skin-care line, which is sold mainly in Asia and at airport retailers where people aren't currently shopping. Men's razors -- also among the company's most profitable products -- aren't getting a major sales boost, Mr. Chappell said.

P&G could take a hit should the economy remain in a prolonged recession, as the company's products tend to be on the pricier side. Company executives said they have prepared for such a scenario by ensuring they have lower-priced offerings across all categories.

Big drugstore chains are seeing store traffic and online sales surge. The companies sell staples and medications, have pharmacists on site, and remain among the few businesses allowed to operate even under the strictest lockdowns. The nation's largest pharmacy chains have agreed to set up coronavirus testing sites in their parking lots to be run by health officials.

Yet CVS Health Corp., the largest U.S. drugstore chain by revenue and stores, warned investors that the epidemic would hurt results. Much of that pain comes by way of the company's Aetna insurance business as medical costs rise without any bump in premiums paid by customers, the company said.

At its stores, CVS said costs have increased as more employees work from home with pay, and the company pays cash bonuses and offers other worker-support programs. Walgreens Boots Alliance Inc. is offering paid time off, bonuses and other programs for employees. Unlike CVS, Walgreens doesn't own an insurer or a pharmacy-benefit manager.

Target said shoppers flocked to stores to buy essentials but skipped past its higher-margin clothes and accessories. Despite sales being up 20% in March, the company said gross margin could fall during the rest of the quarter.

Target is having to spend more on worker pay and to clean stores during the outbreak, which is expected to have an impact of $300 million during the latest quarter.

Write to Paul Ziobro at Paul.Ziobro@wsj.com and Sharon Terlep at sharon.terlep@wsj.com

 

(END) Dow Jones Newswires

April 01, 2020 05:44 ET (09:44 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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