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phil
March 4th, 2020 at 4:09 pm

Oh wait – a new disaster!  

Hasbro warns on Baby Yoda delay

• Hasbro (HAS +3%) discloses that the coronavirus outbreak has disrupted production in China of planned Baby Yoda toys.
• "The occurrence of these types of events can result, and in the case of the coronavirus has resulted in, disruptions and damage to our business, caused by both the negative impact to our ability to design, develop, manufacture and ship product (the supply side impact) and the negative impact on consumer purchasing behavior (the demand side impact)," reads the company's SEC filing on the issue

Beige Book observes continued growth with some virus impact

• U.S. economic activity grew at a "modest to moderate rate" over the past several weeks, according to the Federal Reserve's Beige Book report.
• Consumer spending picked up, but was uneven across the country.
• Notes indications that coronavirus hurt travel and tourism in the U.S.
• Manufacturing activity expanded in most parts of the country; however, some supply chain delays were reported due to coronavirus; producers fear further disruptions in coming weeks.
• Check back for updates.

GE tips lower after reiterating for despite $500M virus cash flow drag

• General Electric (GE -0.2%) drifts lower after maintaining its full-year financial forecast despite an anticipated Q1 hit from the coronavirus outbreak.
• CEO Larry Culp stressed in a conference call that "what we don't know outweighs what we do know at this point," but he is sticking with GE's 2020 industrial free cash flow guidance range of $2B-$4B, even as the coronavirus knocks Q1 free cash flow by $300M-$500M and operating income by $200M-$300M.
• For GE's aviation business alone, segment CEO David Joyce estimated a $200M-$300M hit to FCF from the virus, but for the full year, organic revenue should grow in the "low-single digits" percentage range with FCF "flat to up."
• A skeptical Robert Stallard at Vertical Research Partners thinks GE "may have been a bit optimistic with its aviation revenue forecast for 2020… [If] we see airlines hunkering down because of coronavirus then there could be spares destocking, deferred maintenance and increased old aircraft retirements."
• On the impact of the 737 MAX groundings, Joyce said an agreement was reached with Boeing on payment terms for production deliveries in 2020, and the engines delivered in 2019 that are now on "parked" aircraft; Culp said because of thet agreement, working capital will be a "significant positive" in 2020.

Outlook brightens for availability of coronavirus tests in U.S.

• A group of diagnostic companies met at the White House today to discuss their progress in developing tests for SARS-CoV-2, the coronavirus causing the current outbreak.
• Representatives of Abbott (ABT +4.6%), Thermo Fisher Scientific (TMO +5.1%), LabCorp (LH +5.2%), Quest Diagnostics (DGX +5.8%)and the Mayo Clinic were there. LH CEO Adam Schechter said the industry is working together to increase the availability of the tests, adding that his company expects to launch one "soon."
• Vice President Mike Pence stated that the U.S. Department of Health and Human Services has included coronavirus testing as an essential health benefit for health plans, a move that should increase availability.
• In an interview with Fox News, HHS Secretary Alex Azar said the CDC was shipping enough tests to assay 75,000 samples per week, adding that its private contractor was shipping "over a million testing capability to hospitals, labs and others who want that.”

S&P ahead more than 3% headed into close

• About 40 minutes before the closing bell, stocks are retaking yesterday's lost ground, with the S&P 500 up 3.15%, the Dow 3.5%, and Nasdaq 2.8%.
• The risk-on mode has the 10-year Treasury yield back above 1%, but just barely.
• Oil and gold are down marginally.
• Maybe helping, Congress this afternoon agreed on an $8.3B spending package aimed at the coronavirus outbreak.

Dave & Buster's rallies after KKR increases stake



• Shares of Dave & Buster's Entertainment (PLAY +9.3%) pop after KKR (NYSE:KKR) discloses that it upped its position in the company to 8.3% from 6.3%.
• D&B has been under pressure recently due to concerns that traffic could be impacted negatively by coronavirus anxiety.

All is well:  United to cut international flights by 20%

• United Airlines (UAL -0.7%) says it will cut its flight schedule in April as the global coronavirus outbreak continues to sap demand for travel.
• United plans to cut international flights by 20% and domestic flights by 10%.
• The announcement by United is likely to be mirrored in various degrees by other carriers as a large number of business conferences and spring break trips have been canceled.

Investors dive into consumer staples

• Consumer staples are having a strong day with Dow components Procter & Gamble (PG +4.3%) and Coca-Cola (KO +3.8%) leading the way.
• The sector is popular this week off a mix of the strong consumer stockpiling trend, attractive dividend yields and defensive positioning of investors.
• Notable gainers include PepsiCo (PEP +3.1%), Mondelez International (MDLZ +4.6%), Costco (COST +4.1%), Colgate-Palmolive (CL +4.8%), Kimberly-Clark (KMB +4.8%), J.M. Smucker (SJM +3.7%), Clorox (CLX +3.2%), Hershey (HSY +3.3%), Campbell Soup (CPB +7.1%), Hormel Foods (HRL +3.8%), General Mills (GIS +3.8%) and Kraft Heinz (KHC +2.3%).
• The Consumer Staples Select Sector SPDR ETF (NYSEARCA:XLP) is up 3.60% on the day to outpace broad market averages.

SEC to give companies more time to file reports due to coronavirus

• The Securities and Exchange Commission will allow publicly traded companies an additional 45 days to file certain disclosure reports that would otherwise have been due between March 1 and April 30, 2020.
• "Among other conditions, companies must convey through a current report a summary of why the relief is needed in their particular circumstances," the SEC said in a statement.
• The commission said it may also extend the time period for the relief, with any additional conditions it deems appropriate, or provide additional relief as circumstances warrant

Apple supply chain recovering faster than expected – Nomura

• Nomura analyst Jeffrey Kvaal cites recent Foxconn comments that it expects to return to normal operations by the end of the month, which Kvaal sees as "slightly better than hoped and thus a positive for Apple (NASDAQ:AAPL)."
• Kvaal says the estimate indicates that "Apple’s supply chain is recovering faster than hoped," but notes there could still be demand impact related to the coronavirus.
• Nomura maintains a Neutral rating and $295 price target. Apple has a Bullish average Sell Side rating.
• Apple shares are up 3.6% to $299.78.
• Related: Earlier today, Apple supplier Dialog Semiconductor said its main contract manufacturers should be near 100% capacity by the end of March.

Campbell Soup sees higher demand amid stockpiling trend

• Campbell Soup (CPB +7%) confirms it's seeing higher demand for products, including last weeked when consumers rushed to grocery stores, Costco, Target and Walmart to stock up.
• "There's no question that we're seeing some uptick – it's just hard for me yet to know the level of sustained need," states Campbell CEO Mark Clouse. In particular, Campbell Soup is seeing higher demand for SpaghettiOs, canned pasta and Swanson canned chicken. The question moving ahead will how much of the sales were just pulled forward from a later month.
• While Clouse says the company is looking for alternatives for ingredients it buys from places where supply chains are being disrupted, he also notes that only about 10% of CPB's total ingredients come from outside of North America and China accounts for under 2%

Starbucks plays defense against coronavirus

• Starbucks (SBUX) is telling employees to regularly sanitize door handles, chairs, tables and coffee bars amid the coronavirus outbreak. Store managers have been given the green light to boost employee hours by 1% to account for the extra cleaning.
• While the company has re-opened about 85% of its stores in China that were closed at the peak of the outbreak, the chain is now reacting to the flurry of new cases globally including some in its home base of Seattle.
• Starbucks also changed its annual shareholder meeting scheduled for March 18 to an online format.
• Earlier today, Wedbush issued a sweeping note on the oversold status of many restaurant stocks, but didn't recommend SBUX to investors quite yet as its analysis didn't take into account the global impact of the coronavirus.

Movie-theater stocks legging down again after Bond delay

• Movie-theater names are sharply lower again against a strong market – feeling a rough month coinciding with rapidly changing developments around the globally spreading COVID-19.
• AMC Entertainment (NYSE:AMC) is -6.1% today; Cinemark (NYSE:CNK) -5.7%; IMAX -3.7%; Marcus (NYSE:MCS) -4.5%.
• Some fallout could be tied to the high-profile postponement of the latest James Bond film.
• That represents not only a big April opening taken off the table – the last Bond film, Spectre, opened to $70M domestic – but also a potential bellwether for other event pictures considering the same delays until the Asian theatrical market settles somewhat.
• Theaters have been closed due to the coronavirus across China as well as Korea, Japan, Italy and France.

GM aims high at EV Day event

• General Motors (GM +1.7%) told investors at today's EV Day event that the company plans to invest $20B by 2025 in electric and automated vehicle technology.
• Looking down the road, GM thinks it can be profitable after its EV transition by slashing the number of powertrain combinations in use, as well as simplifying batteries and vehicle architectures.
• CEO Mary Barra stated that the automaker is on track to cut battery cell costs to less than $100 per kilowatt-hour in a profit-boosting development.
• Barra also reiterated a GM goal of selling 1M electric vehicles annually in the U.S. and China by 2025.

U.S. capacity must shut down unless LNG prices rise – Bernstein

• Cheniere Energy (LNG -2.2%) and Cheniere Energy Partners (CQP -0.7%) trade lower even as natural gas prices edge off multi-year lows, recently +0.2% to $1.803/MMBtu.
• Asia spot gas prices have dropped below the $4/Mcf cash cost of supply, "which is not sustainable," according to Bernstein analysts led by Neil Beveridge. "Prices will have to rise or U.S. capacity has to shut down… sooner rather than later."
• Bernstein suggests several explanations why that has not yet happened: some buyers have contracts to take the fuel, some buyers can pass costs through to end users at cost, a 60-day period is required before capacity can be turned down, and shipping costs are falling sharply.