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