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Coronavirus spreads to a previously healthy sector: corporate earnings

March 2, 2020, 11:00 AM UTC

First China. Then Italy. Then Iran and the U.S. Now coronavirus had breached another barrier: the corporation.

According to Amenity Analytics, a natural language processing company, references to “coronavirus” have been made over 8,000 times across over 1,000 companies on earnings call transcripts, as of Feb. 26.

Several of the biggest names on the market to announce coronavirus-related setbacks include heavy-hitters like Apple, Microsoft, and United Airlines.

Nela Richardson of Edward Jones predicts the trend is likely to continue. “Everyone is putting their thumb up against the headwind and trying to figure out the direction at this point, but I think it’s safe to say we’ll see an impact [on earnings] in the first half of the year,” Richardson tells Fortune. “Whether that revenue growth actually improves and snaps back in the second half is still to be determined.”

In fact, the recent spread of the virus has Goldman Sachs revising earnings predictions, now estimating 0% earnings growth for 2020—a far cry from the Street’s current consensus of 7% earnings growth this year. Over the past 10 years, earnings have overall been growing—earnings growth was around 20% in 2018, although growth in 2019 remained relatively flat.

Apple was one of the first to announce the impact the virus might have on earnings. The tech titan recently announced it wouldn’t meet its revenue projections for the current quarter due to limited iPhone production and lower demand for products in China as a result of the virus spreading.

Microsoft also announced that disruptions in Chinese manufacturing would cause the company to miss sales predictions for its fiscal 3rd quarter due to coronavirus. “Although we see strong Windows demand in line with our expectations, the supply chain is returning to normal operations at a slower pace than anticipated,” Microsoft said in a statement. MasterCard also announced it was reducing its forecasts for first quarter and full-year revenues, citing problems with travel and e-commerce from coronavirus. The company also announced it expects quarterly revenue growth to slow by 2% to 3% if the outbreak spreads at its current pace.

In hospitality, hotel chain Marriott International says it expects a roughly $25 million hit to its monthly fee revenue from the coronavirus, while airlines like United Airlines have officially withdrawn revenue guidance for 2020 due to uncertainty over how the virus will impact demand for flights. The airline said that currently, it is experiencing “an approximately 100% decline in near-term demand to China,” according to a regulatory filing last week.

Coca-Cola Co. also announced a 1 cent to 2 cents knock on its earnings per share in the 1st quarter, citing coronavirus’ impact on its supply chain. And, unsurprisingly, Royal Caribbean Cruises has been issuing continued updates about the impact of the virus on the company, as the cruise company has now canceled 30 trips and announced the virus would dock 90 cents from 2020 earnings per share.

Edward Jones’ Richardson thinks we’re likely to see more companies revising outlooks in the near future, but that at this point, the “impact overall will be transitory, not permanent.” Areas likely to (continue) seeing a virus impact include retail, airlines, hospitality, semiconductors, and energy, according to Richardson.

Still, for some like Brad McMillan, chief investment officer at Commonwealth Financial Network, the drastic cuts to companies’ outlooks may be overblown.

“Companies typically try and tend to downplay what they’re going to do—they would rather underpromise and overdeliver,” McMillan tells Fortune. “What better chance to dial expectations way down than to say, ‘hey, the coronavirus might really hit us’?”

Dialing back expectations is what SEI’s Jim Smigiel calls “a prudent move.” While he acknowledges (as other analysts have) that we don’t know what’s going to happen, Smigiel sees coronavirus as “potentially what could be a 2020 issue for the global capital markets and the global economy” on the whole.

“It’s too early” to know

Some companies still don’t have a handle on how badly earnings might be hit.

JCPenney CEO Jill Soltau said on an earnings call last week that while “the coronavirus continues to be a fluid situation that we are of course watching closely,” the company thinks it “remains too early to quantify any financial impact of the virus”—noting the retailer’s diversified supply chain and lack of exposure to retail locations in China.

Others like Best Buy are also waiting it out, as Best Buy CEO Corie Barry said on an analyst call that, at present, it’s “very difficult to determine exact financial impact.” For Macy’s CEO Jeffrey Gennette, it remains “too early” for the company to comment on any impacts of coronavirus on its supply chain, the CEO said last week.

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