Company profit warnings signal virus already a global crisis

For big business, the impact of the new coronavirus epidemic is exacting a growing toll worldwide.

Mastercard Inc and United Airlines Holdings Inc emerged as the latest companies to warn that sales and profit are getting hurt as the epidemic spreads meaningfully beyond its center in China's Hubei province. Growing outbreaks are emerging in other parts of Asia and in Europe.

The US credit-card network cut its revenue-growth forecast as the spread of infections puts off travelers. Chicago-based United scrapped its 2020 profit forecast altogether, underscoring the unpredictable nature of the two-month-old health emergency.

With the spread of the outbreak raising questions over whether it will be declared a global pandemic, businesses around the world that are exposed to travel are clear targets. Singapore Airlines Ltd on Tuesday pulled more flights from its schedule through the end of May, adding to a long list of airlines led by Cathay Pacific Airways Ltd that are cutting capacity as demand craters. Air New Zealand Ltd warned its earnings will be hit, too.

Increasingly, though, the coronavirus has become a concern for any industry fed by a global supply chain.

In China, the biggest consumer market and a factory for the world, manufacturing facilities have closed and even some of the biggest cities put in lockdown. That has disrupted production, logistics and sales for businesses that churn out modern-day essentials, from Procter & Gamble Co in the US to Germany's Adidas AG and Australian vitamins maker Blackmores Ltd.

Royal Philips NV said Tuesday that it expects a hit in the first quarter as it sells fewer consumer appliances in China and its supply chain gets snarled. Nestle SA pushed back its target for sales growth as revenue from China, the Nescafe maker's second-largest market, slows.

Pernod Ricard SA cut its forecast for full-year profit growth by about half, citing the effect of the coronavirus on sales of drinks including Jameson whiskey in the key Chinese market. Adidas said last week that business slumped 85% in China since the end of the Lunar New Year holidays.

One of the first warnings came from Burberry Group Plc, which scrapped its forecast for the year, warning that the coronavirus epidemic is cutting sales by three-quarters or more at stores in China.

Anxiety over the US-China trade war already made investors question if supply chains should be more localized, and the virus outbreak has strengthened the argument for keeping operations close to home, according to William Low, head of global equities at Nikko Asset Management Europe Ltd.

Spreading Globally

The number of coronavirus cases in South Korea soared over the past week, rising from just dozens to more than 800, making it the most-infected country outside China. Meanwhile swathes of Italy are in lockdown, and total cases worldwide have topped 80,000.

The World Health Organization called the increase in cases outside China "deeply concerning," though stopped short of labeling the crisis a pandemic.

Either way, US consumer-goods giant P&G late last week said both sales and earnings will be affected amid lower store traffic in China and beyond, with travel retail also getting hurt. HP Inc on Feb 24 flagged a "significant impact" to free cash flow in its second quarter because of production and manufacturing delays.

Even state-owned investment firms aren't immune. Temasek Holdings Pte in Singapore, where there have been 90 confirmed cases, said Tuesday it's implementing a companywide wage freeze and asking senior management to take voluntary pay reductions for as long as a year.