This article first appeared in the Wall Street Journal
Updated Feb. 28, 2020 5:11 pm ET
The coronavirus has sent markets tumbling, as its ramifications to a swath of businesses and industries becomes more apparent. Companies that make and sell products are struggling to secure supply lines as business disruptions ricochet far beyond China. They are also coming to terms with the near-shutdown of what for many industries is their most promising market.
Here’s a roundup of how the virus is affecting key industries.
Some Asian and European carriers have implemented drastic cost-cutting measures after canceling flights to China and curtailing services to other affected areas, like Italy. Global bookings are down as much as 15% from pre-virus levels. Even the typically hardy business traveler is pulling back. Nestlé SA banned all international travel for its staff, except in rare circumstances requiring approval from senior management.
Chinese airlines have been worst hit, with hundreds of planes parked.
United Airlines Holdings Inc., British Airways owner International Consolidated Airlines Group SA and European budget carrier easyJetPLC have all said this week they won’t provide profit guidance for the year given the uncertainty. The Stoxx Europe 600 Travel & Leisure Index, which includes airlines, but also industries like hotels and cruise lines, is down more than 17%.
Vehicle sales in China, the world’s biggest market for cars, cratered 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.
Meanwhile, the auto industry’s just-in-time supply lines are straining. Hoping to stave off factory work stoppages, some manufacturers have taken the unusual and costly step of flying in critical parts by cargo planes.
This month, United Auto Workers officials flagged the risk of parts shortages at General Motors Co. plants in Michigan, Indiana and Arlington, Texas, where the company’s lucrative pickup trucks and big sport-utility vehicles are built. Production at those factories so far hasn’t been affected, a company spokesman said.
Smartphone and personal-computer makers are warning that weaker demand and supply-chain disruptions could weigh on sales. Apple Inc.this month said iPhone shipments in the current quarter would be hit.Microsoft Corp. said it now expects lower-than-projected sales in the current quarter for its unit making tablets. PC-maker HP Inc. estimates an 8-cent-a-share earnings hit in the current quarter, and lower free-cash flow.
Industrywide, fewer devices are likely to be shipped this year than expected only three months ago, according to consultant International Data Corp. Smartphone shipments are likely to fall by 2.3% this year compared with the year prior, with almost 64 million fewer devices going to customers than IDC projected in November. Personal-computer shipments, including laptops and tablets, will fall 9% this year, IDC said.
Chip makers also are feeling the impact. Graphics chip-making giant Nvidia Corp. cut its sales outlook for the current quarter by $100 million.
–Sarah E. Needleman and Asa Fitch
Banking stocks typically go up and down with expectations for the economy, effectively serving as bets on U.S. and global economic growth. As the virus spreads, some fear that efforts to stop it—quarantines, travel bans and widespread business closures—could weigh on consumer and business spending.
“Risks are probably more skewed to the downside, particularly in the near term given uncertain factors like the coronavirus,” JPMorgan Chase & Co. Chief Financial Officer Jennifer Piepszak told investors this week, referring to the economy.
Banks with heavy exposure to Europe and Asia—where the virus so far is taking its biggest toll—have issued profit warnings. HSBC HoldingsPLC said earlier this month that it could take up to $600 million in additional loan-loss provisions if the crisis extends into the second half of the year.
Steep falls in commodity prices and lower demand for metals from any economic slowdown are expected to hit miners’ earnings. Some analysts and investors are pinning their hopes on Chinese government stimulus generating demand, leading to a rebound later this year.
The price of copper is down 10% year to date, iron ore is down 5.4% and zinc dipped below the $2,000 a ton mark for the first time since mid-2016. Even gold, a safe-haven asset, fell on Friday, down 1%, in a decline that Commerzbank AG attributed to some investors having to sell to cover losses elsewhere.
Russian mining giant Norilsk Nickel Mining Metallurgical Co. has said the coronavirus is disrupting supply and demand for nickel. That included through Chinese workers not returning to mines in Indonesia, it said.
Chinese factories are slowly ramping up production, but apparel and footwear companies are still facing a roughly monthlong delay in their supply chains, which could result in a shortage of spring goods. E.S. Originals Inc., a footwear company that imports all of its shoes from China, is experiencing shipment delays of two to four weeks, according to its Chief Executive Joey Safdeye.
“We’ll have a shortage in our Nautica brand,” Mr. Safdeye said.
It isn’t just finished goods that are facing hiccups. Raw materials such as polyester aren’t getting to the mills that weave them into yarn for fabric because of a transportation lockdown, according to Salmon Lee, a principal consultant with Wood Mackenzie, a research company that tracks raw materials.
Sales are threatened, too. Adidas AG last week said business activity since Jan. 25 in Greater China was 85% lower versus the comparable period a year earlier.
–Suzanne Kapner and Saabira Chaudhuri
Hollywood studios are postponing several prominent film releases in China. The virus is starting to disrupt production of the next slate of blockbusters, too. China is now the world’s second-largest box-office market behind the U.S., and practically all its cinemas have been closed since late January.
Earlier this week, Paramount Pictures said it was delaying production of “Mission: Impossible 7,” starring Tom Cruise, which was supposed to begin shooting in Venice, after the outbreak grew in Italy.
Universal Studios, owned by Comcast Corp., shelved its original plans to release “Dolittle” in China last month. The studio spent $175 million to make the movie and had hoped to offset some of the costs with a strong run in China. Robert Downey Jr., who plays the title character in “Dolittle,” is popular in the country thanks to his appearances in several Marvel movies.
Container shipping lines are idling vessels at a record pace this quarter and have slashed dozens of sailings on major trade lanes connecting Europe and North America to China, the world’s biggest exporter of manufactured products and largest importer of raw commodities.
Demand in China has been throttled by quarantines that have kept workers from returning to factories following the Lunar New Year. Ports are open but are backed up because trucks can’t get to the cargo terminals as a result of virus-related transportation restrictions.
“It’s a big, expensive mess,” said George Lazaridis, head of research at Athens-based Allied Shipbroking. “Ships still can’t call on ports, there are no trucks to move products and owners can’t send people to China to check on ship orders or repairs.”
Many in the industry say they expect the impact to be far worse than the hit from the outbreak in China of SARS, or severe acute respiratory syndrome, in 2003. Some 1.5 million Chinese residents received visas to travel to the U.S. in 2018, according to the National Travel and Tourism Office, compared with 217,000 in 2003.
The industry could lose $5.8 billion in airfare and domestic spending this year, estimates Tourism Economics, an economic consulting company. “There is so much more at stake than there was 17 years ago,” said Adam Sacks, the company’s president.
Places like New York, Paris and Milan have all become dependent on Chinese tourists, who often spend more than the typical visitor. Estée Lauder Cos . and Capri Holdings Ltd., which owns the Versace and Jimmy Choo brands, warned investors this month their financial results could suffer as a result of lower sales to Chinese travelers.
A new Galeries Lafayette store in Paris, where there are signs in Chinese and a center where tourists can claim value-added tax refunds, was largely empty earlier this month. Normally, more than 1,000 shoppers a day visit the store, many of them Chinese tourists who arrive by the busload after stopping at sights such as the Louvre, a salesman said.
–Keiko Morris and Matthew Dalton
The Asian cruise market all but ground to a halt. As the virus spreads westward, worry has gripped the Mediterranean and Caribbean markets, both of which are bigger and more popular with Americans, especially in the spring and summer. The outbreak in Italy, a big cruise destination, has rattled the industry further. “The situation is fairly critical, and it all depends how the virus plays out,” a senior cruise operator executive said.
Hundreds of ships from big players Carnival Corp., Royal Caribbean Cruises Ltd., Norwegian Cruise Line Holdings Ltd. and MSC Cruises navigate the Mediterranean over the summer months.
Coronavirus couldn’t have come at a worse time for American shale drillers.
The virus has further weakened global demand for oil and gas, raising financial pressure on the companies, many of which are saddled with debt. The coronavirus has sent U.S. benchmark oil prices plunging to about $45 a barrel, clouding 2020 prospects.
Global oil demand is now expected to fall in the first three months of the year, pressuring the Brent crude benchmark, which dropped below $50 a barrel for the first time in 2½ years.
Overseas, Saudi Arabia, the world’s largest oil exporter, this week decided to reduce oil shipments by 500,000 barrels a day next month, officials in the kingdom said, amid mounting evidence that the virus is hurting oil demand. The Saudis are considering an extension of the cuts into April. Saudi Arabia supplies China with around 1.7 million barrels of crude daily, according to data from China’s General Administration of Customs.
–Rebecca Elliott and John Simons
Direct sales in China remain a smaller part of most U.S. durable-goods manufacturers’ revenue streams. But they often depend on the country for materials or components used in products built elsewhere. The virus has disrupted supply chains, making it difficult for companies to obtain parts or arrange transportation to ports in China for export to North America.
On Friday, Whirlpool Corp. trimmed its first-quarter profit guidance as the coronavirus outbreak dampened sales of household appliances in Asia and Europe.
Whirlpool said its sales and supply chain in China and elsewhere in Asia will be “significantly impacted by the virus until at least the end of the first-quarter.” Whirlpool predicted an outbreak of the virus in Italy would hurt sales there, too. Whirlpool said it has operations in northern Italy where a cluster of virus cases have been reported.
Emerson Electric Co. widened its expected sales decline stemming from the coronavirus, saying the longer the virus persists, the less likely that sales will recover later in the year.
The hotel industry was already bracing for its worst year in a decade because of a weaker domestic market. Now the spread of the coronavirus abroad has lodging executives worried about how bad it could get.
Global hotel brands like Hilton Worldwide Holdings Inc. and InterContinental Hotels Group PLC look most vulnerable to a drop-off in business in China and at other Asian properties. Marriott International Inc. warned this week it could have about $25 million less in monthly fee revenue this year if low occupancy rates in Asia continue.
“Right now the hotel companies are holding off on declaring this an emergency but it seems like it’s just a matter of time before we’ll see confirmation of significant impact,” said Sean Hennessey, CEO at hotel consultant Lodging Advisors.