Concerns over the deadly coronavirus outbreak continue to overwhelm major players in the business sector. Big corporations have closed shops in China temporarily as they revised business outlook for fiscal 2020.
The virus, that now infected 7,711 people in China and killed 170, continue to disrupt the supply chain, logistics, manufacturing, even executives of big companies. The current state is reminiscent of how SARS infected 5,237 people in mainland China and killed about 800 between 2002 and 2003.
Companies that held their earnings calls this week are scrambling to factor in the financial damage that the disruption could bring into their businesses for the rest of the year. Out of the S&P Composite 1500 companies, 27 mentioned the word "virus" or "coronavirus" multiple times during their earnings calls.
The looming financial impact drowned excitement even for financial reports that beat analysts' expectations. Such is the case for Apple and Starbucks.
Apple reported quarterly revenue of $98.1 billion, up 9% from the same period last year. It was an achievement coming from the downtrend that took place as the China-US trade happens.
In the conference, Tim Cook said they are now looking for alternate sources for suppliers based in the Wuhan area. He said the company is working on mitigation plans to cushion the blow of coronavirus.
Apple has already closed one of its retail stores in China as a number of its partners stopped operations temporarily. Some Apple stores remain open but reduced operating hours to conduct deep cleaning of surfaces. Cook assured investors that Apple tried to do its best to account for all possible financial impact for the 2020 guidance it gave during its report.
Fears of financial impact of the coronavirus outbreak for the fiscal year also drowned investors' excitement over Starbucks' strong quarterly earnings report. The corporation said during its reporting that it was compelled to close about 4,300 stores in China as the deadly coronavirus ravages on.
Starbucks' closure of about half of its Chinese stores dismissed the increase in comparable store sales announced during the company's financial reporting. Comparable store sales in the Asian country were up by 3% on top of a 1% increase in comparable transactions.
Investors also focused on the looming financial impact on the company for the rest of the year even with Starbucks announcing earnings of 79 cents per share, the revenue of $7.1 billion, and a 5% increase in global same-store sales.
To compare, Wall Street analysts expected 76 cents earnings per share and a 4.4% increase in global same-store sales.
Starbucks said it may achieve its previous fiscal 2020 goal but that would be a scenario that would undermine the impact of coronavirus. The corporation was looking into a 6% to 8% increase for full-year revenue and 3% to 4% in global same-store sales.
As the company continues to monitor the impact of coronavirus outbreak and adjust operating hours for most of its Chinese stores, it will also be compelled to adjust its outlook for fiscal 2020, the company said in a statement.
In its statement, Starbucks reiterated that it expects longer business disruption and reduced customer traffic. Since these factors are currently unpredictable, its actual financial impact on the company "cannot be reasonably estimated at this time."
"[Coronavirus] is expected to materially affect our international segment and consolidated results for the second quarter and full year of fiscal 2020," Kevin Johnson, president and CEO of Starbucks said in a statement.
The decision to close the majority of its Chinese stores is not isolated to Starbucks. As the outbreak persists, both local and international companies are also stopping their employees from traveling to the Asian country.
Facebook dissuaded employees from traveling to China unless it is really important. The company also advised its employees who recently traveled to China to work from home temporarily.
The same preventive measures are being done by Goldman Sachs, Ford, Johnson & Johnson, Nissan, and Standard Chartered bank, Amazon, Google, LG, Razer, and tech supplier SteelSeries.
Employees who recently traveled from China were advised to subject themselves to strict health screenings. They were asked to be patient and to remain cooperative. At J&J, employees who needed to travel to the Asian country need to secure approval from their superiors prior to their intended flight. At Goldman Sachs, employees from China were requested to quarantine themselves and work from home for at least 14 days.
Of gravely hit is the tourism industry, most especially cruise operators. The world's largest cruise operator, Royal Caribbean International, canceled cruises from Shanghai. Carnival Cruise, meanwhile, already canceled four of its scheduled trips in the region.
James Hardiman, managing director of equity research for Wedbush Securities, said cruise lines are losing about $3 to $4 million of revenue for each canceled voyage. That amount translates to $0.02 of earnings, he said.
Airlines is another segment within the tourism industry that is bearing the brunt of financial repercussions brought by the coronavirus outbreak. Major European and US airlines have already canceled flights to China.
Experts said traveling by air is the fastest means through which viruses can spread, especially if tourists are flying in the economy. Among those that have canceled flights include Air Canada, Air India, Air Seoul, Air Tanzania, American Airlines, Asiana Airlines, Austrian Airlines, British Airways, Cathay Pacific, FinAir, IndiGo, Jetstar Asia, LionAir, Lufthansa, and Swiss International Airlines.
