By Thomas Gryta and Russell Adams
Companies have endured financial meltdowns, civil wars and
natural disasters. But nothing in modern memory has dented both
demand and supply so quickly for so many industries as the
The virus, which has infected more than 85,000 people, has
quickly spread through Asia and Europe, disrupted global travel and
hobbled supply chains that churn out everything from smartphones to
pharmaceuticals. In days, it went from pockets of woe to the top
concern of chief executives world-wide.
Conferences are getting canceled, from the Geneva International
Motor Show to Facebook Inc.'s F8 developer gathering in California.
Disneyland Tokyo is closed. Auto suppliers are warning of parts
shortages. Generic drug manufacturers are paying 50% more for some
The widespread nature of the epidemic and related uncertainty
will put a hold on large corporate investments, mergers and hiring,
said Stanford University economist Nicholas Bloom, who has
researched the impact of uncertainty on business cycles.
"A lot of the damage is already being inflicted purely from
major decisions being delayed," Mr. Bloom said. "I can't see many
firms green-lighting any projects until they can figure out what is
Larry Kudlow, director of the White House's National Economic
Council, said Friday the threat from the virus for Americans is low
and the "coronavirus is not going to sink the U.S. economy." Some
in the White House have blamed the media's coverage of the outbreak
for exaggerating the situation and causing hysteria.
The virus surfaced as U.S. companies were riding atop America's
longest economic expansion on record, matched by soaring
stock-market returns. But profit growth for S&P 500 companies
started to cool last year, squeezed by rising labor costs and trade
Official Chinese government gauges of activity in the
manufacturing and services sectors plunged to record lows in
February, the country said Saturday, dropping deep into territory
that indicates a contraction.
In the U.S., business activity in February fell to its lowest
level in more than six years on fears of the epidemic.
In February, 129 companies in the S&P 500 discussed
"coronavirus" in their quarterly earnings calls, up from 60 in
January, according to a Wall Street Journal analysis of
transcripts. There were nearly 600 mentions of the virus in
companies' security filings in the past week alone, according to
Kaleidoscope, a research firm.
Executives have talked about how the virus will slow consumer
spending on products from Crocs sandals to Gucci handbags. It has
slowed production at nickel mines in Indonesia and halted the
filming of "Mission Impossible 7" in Venice.
At the same time, many companies have cautioned it is too soon
to tell how serious an economic problem the virus will be.
"Every CEO that I know has got to manage an employee dimension,
supply-chain dimension, in many cases a revenue dimension," as well
as Wall Street's needs, said Mike White, who ran PepsiCo Inc.'s
international division in 2003 when SARS hit. He now sits on the
boards of Whirlpool Corp., Kimberly-Clark Corp. and Bank of America
Corp. "We're still in the middle of the river here," he said.
Whirlpool cited its sales and supply chain in China and
elsewhere in Asia in trimming its first-quarter profit guidance
Friday. The appliance maker said the outbreak in northern Italy,
where it has manufacturing operations, would hurt sales there
Some companies that have tried to gauge the impact of the virus
have had to revise initial estimates. Emerson Electric Co., which
makes factory automation equipment, warned on Feb. 13 the virus
would reduce quarterly sales by $75 million to $100 million. On
Friday, it put the damage as high as $150 million.
On Friday, United Airlines Holdings Inc. postponed until
September an investor meeting that was scheduled for March 5,
saying it couldn't have a productive conversation on its long-term
strategy until the virus abates. United also is offering certain
pilots the option of taking April off with reduced pay, according
to a letter from the pilot union chairman to members.
Airlines have taken one of the hardest, earliest hits from the
spread of the virus. Asian and European carriers have implemented
cost-cutting measures to accommodate canceled flights to China and
curtailed services to other affected areas such as Italy.
As the spread of the virus in China has slowed, some Chinese
factories are reopening, though many are short-staffed and
transportation is still difficult. For example, smartphone makers
are expected to ship 64 million fewer devices in the first half of
2020, market researcher International Data Corp. said, hampered by
component shortages and quarantine mandates.
Zuru Ltd.'s factories have reopened in phases over the past few
weeks, after the toy maker installed dividers between workspaces
and added sanitation stations. But the Shenzhen-based company is
thinly staffed due to restrictions on China travel and was
operating at 20% capacity last week, said co-founder Anna Mowbray.
"There's definitely going to be holes on shelves," she said.
In other countries, the disease is still spreading. Hyundai
Motor Co. on Friday stopped building its popular Palisade SUV and
other U.S.-sold SUVs after a factory worker in Korea tested
positive for coronavirus. Google said Friday one of its employees
in Zurich had been diagnosed, but the office remains open.
Some companies are getting hit in multiple ways. Water-heater
maker A.O. Smith Corp. detailed its situation in a securities
filing: It has resumed operations in China but at below-normal
levels. The stores where its products are sold are mostly closed or
operating on reduced hours with significant decline in customer
visits, the Milwaukee-based company said. Its products require
professional installation, which is limited because of disease
containment efforts in China, it said.
China is a key supplier of chemical and raw materials used by
many pharmaceutical manufacturers, a potential problem for popular
blood-pressure medicines and several older antibiotics that are no
longer manufactured in the U.S.
Experts believe China is also the only maker of key ingredients
in a class of decades-old antibiotics known as cephalosporins,
which treat a range of bacterial infections including
Automotive suppliers are warning car companies they could run
out of certain parts used in North American factories in coming
weeks, with particular concern over potential shortages of
electronic components. Hoping to stave off factory stoppages, some
manufacturers have taken the unusual and costly step of flying in
critical parts by cargo planes.
Vehicle sales in China plummeted 92% in the first 16 days of
February, according to the China Passenger Car Association. Several
suppliers have cut profit forecasts in recent days because of the
fallout, including electronics suppliers Aptiv PLC and Visteon
Corp., and seat maker Adient PLC.
Some companies have benefited from the outbreak, which has
spurred buying of respiratory face masks and disinfecting wipes,
propping up the shares of some of the companies that make them.
Clorox Co.'s stock briefly hit record highs last week while the
broader market plunged.
"The good news is that the shock from the virus is hitting at a
time when households appear to be in good shape," wrote Bob
Schwartz, a senior economist with Oxford Economics.
Mr. White, the former PepsiCo executive, said the long-term
economic outlook is solid but there is short-term pressure on
companies. "Almost every company is going to have an issue with
their first quarter numbers, " he said.
Write to Thomas Gryta at firstname.lastname@example.org and Russell Adams
(END) Dow Jones Newswires
March 01, 2020 07:14 ET (12:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
AO Smith (NYSE:AOS)
Historical Stock Chart
From Oct 2020 to Nov 2020
AO Smith (NYSE:AOS)
Historical Stock Chart
From Nov 2019 to Nov 2020