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What corporate America is saying about the government shutdown

Emily McCormick

The longest government shutdown in U.S. history is starting to pinch companies.

The partial government shutdown – affecting a host of U.S. agencies that have not yet received funding – entered its 27 day on Thursday.

The extended shutdown has left corporate America jittery on a number of fronts. A depleted U.S. Securities and Exchange Commission faces a backlog of filings among companies planning initial public offerings early this year. Separately, some institutions have cut their growth outlooks for the U.S. economy, considering the lost productivity from the estimated 800,000 government employees either furloughed or working without pay.

But concerningly for investors, the shutdown has trickled down to impact corporations at a company-specific level. A number of companies have said an extended government shutdown will create a drag on their financial performance, or will impact operations that require cooperation with the agencies affected by the shutdown. Others criticized the shutdown for weighing on sentiment.

Here’s a look at what some companies have recently said about the shutdown:

JPMorgan Chase: An extended shutdown “can reduce growth to zero” in the U.S.

Jamie Dimon, JPMorgan Chase (JPM) CEO and typically a bull on the U.S. economy, said the partial government shutdown could flatten the country’s economic growth.

“Someone estimated that if it goes on for the whole quarter, it can reduce growth to zero,” Dimon said during a media call announcing the bank’s quarterly results. “We just have to deal with that. It’s more of a political issue than anything else.”

Dimon, in a statement announcing JPMorgan’s fourth-quarter earnings results, called for U.S. politicians and business leaders to work together more effectively.

As we head into 2019, we urge our country’s leaders to strike a collaborative, constructive tone, which would reinforce already-strong consumer and business sentiment,” he said in a statement, “Businesses, government and communities need to work together to solve problems and help strengthen the economy for the benefit of everyone.”

JPMorgan analyst Michael Feroli on Jan. 24 lowered the firm’s projections for first quarter annualized real gross domestic product growth to 1.75% from 2%, after having downwardly revised estimates to 2% from 2.25% in a note published Jan. 10.

Feroli estimates that each week the government is shut down subtracts 0.1 to 0.2 percentage points from quarterly GDP growth. “That estimate solely accounts for the reduction in government sector output and does not incorporate any potential spillover effects into private economic activity,” Feroli wrote in his latest note.

The White House released its own estimate stating that each week of the shutdown will reduce growth in the U.S. economy by 0.13 percentage points, Reuters reported earlier in January.

The company’s executives also noted that the shutdown could impact investment banking for the firm.

“For IPOs, in particular, for sure if we don’t see the ability to get approval from the SEC on IPOs, and to a lesser extent, some of the M&A deals that need approval from government agencies, it will be problematic in the ability to see those activity levels play out and fees be realized,” CFO Marianne Lake said during a call with analysts discussing quarterly results.

Morgan Stanley: “This is not the way the U.S. should be working”

Morgan Stanley (MS) CEO James Gorman is worried about a protracted government shutdown.

“I personally feel it’s extremely negative if this shutdown goes on much longer,” Gorman said, speaking in an interview with CNBC at the World Economic Forum in Davos, Switzerland. “If it goes on through months of this year, it’s going to have an extremely damaging effect.”

Gorman criticized the human impact of the shutdown, which has directly affected an estimated 800,000 workers who have been either furloughed or made to work without pay during the closures.

“This is not the way the U.S. should be working,” Gorman said.

Gorman acknowledged that both Democrats and Republicans need to come to a compromise in order to get the government reopened.

“I truly hope the leadership of both sides come to some way of resolving what seems to be a relatively straight-forward problem," Gorman added. "I recognize we have a wall. It's 500 miles long. We've had it for a long time, and it's been sponsored by Democrats and Republicans for a long time. If there are some sensible additions to be made to the wall to improve border security, let's make them."

Bank of America, PNC Financial Services: U.S. growth to remain strong, ex-shutdown

Other major financial institutions have pointed to the government shutdown as a concern for the U.S. economic growth outlook.

Bank of America (BAC) listed the government shutdown among a swathe of other global concerns weighing on economic growth.

“Trade wars, government shutdown, China slowdown, EU slowdown, Brexit, you name it, both here and abroad, impact people’s economic growth outlook,” CEO Brian Moynihan said during a call with investors discussing quarterly results. “We are mindful of those impacts, but we see in the U.S. strong indications of continued growth due to the denizens we have here in our economy.”

Elsewhere, PNC Financial (PNC) noted that an extended shutdown could weigh on otherwise strong aspects of the U.S. economy. PNC Financial sees the U.S. economy growing at a clip of 2.5%, and anticipates “healthy loan demand as the re-pricing of the risk in the capital markets drives business back to banks.”

“Our corporate clients as we talked to them remain largely bullish,” CEO William Stanton Demchak said on a call with analysts. “Of course, all fo this could change if, for example, the government shutdown persists for a longer period of time or disagreements with China on trade aren’t sorted out and the impact currently being felt by large multinationals starts to trickle down to the broader economy.”

Southwest Airlines: No flights to Hawaii in sight

Southwest Airlines (LUV) said it is taking a $10 million to $15 million hit in lost revenue in January as a result of the government shutdown, the airline said when announcing quarterly results Jan. 24.

The company earlier in January said its plans to launch flights to Hawaii were put on hold due to the government shutdown. The FAA employees that had been working on certifying the airline’s flights over water were furloughed, temporarily pulling the plug on the process.

Southwest had hoped to begin service to Hawaii from several airports in California during the first quarter of 2019. The company said it would begin selling tickets to Hawaii and launching flights as soon as it receives certification.

Delta Airlines: Shutdown will cause a $25 million dent to revenue this month

Delta Airlines (DAL) executives were quick to quantify the impact of the government shutdown in terms of the company’s top line.

“With respect to the government shutdown, we are seeing some pressure on our business,” Delta CEO Ed Bastian said in a call discussing quarterly earnings results. “On the revenue front, we’re experiencing about $25 million per month in lower government travel.”

The government shutdown is having an even “bigger impact” on Delta operations, Bastian added. With non-essential work at the Federal Aviation Administration shut down, the company’s Airbus A220 debut is “likely to be pushed back due to delays in the certification process,” Bastian said. The new model was originally scheduled to debut at the end of January.

“This is also hampering our ability to put seven other new aircraft deliveries into service, but it's our customers who are seeing the biggest impact, with longer lines at airport security,” Bastian added.

Airports overall have been impacted as absentees have increased among TSA screeners, who are working without pay during the shutdown. Bastian said Delta employees have helped perform nonessential aspects of the security process to help minimize delays.

United Continental: Long-term government shutdown could be problematic, but no “significant” impact yet

A long-term government shutdown could be problematic for United Continental (UAL) eventually, but it has not had a “significant” impact on the airline yet, CEO Oscar Munoz told CNBC Wednesday.

“Clearly the longer this goes, of course there’s going to be impact, and we do worry about that,” he said.

Andrew Nocella, chief commercial officer for United Continental, said during a call with investors that he anticipates first-quarter passenger revenue per available seat mile to be flat to 3% higher compared to last year’s figures. This is a wider range than typically anticipated due in part to “uncertainty” as a result of the shutdown.

JetBlue: “We are close to a tipping point”

JetBlue Airways (JBLU) CEO Robin Hayes said the company has not yet seen a “significant impact” to their operations or bookings due to the government shutdown but is “concerned about the shutdown’s consequences for convenient and efficient air travel and for the economy overall.”

“We are close to a tipping point, as many of these employees are about to miss a second paycheck,” Hayes said during a call discussing JetBlue’s fiscal fourth-quarter results.

Hayes added that crew members and customers are likely to experience extended security lines, flight delays and even cancellations due to the shutdown.

“The longer this goes on, the longer it will take for the air travel infrastructure to rebound,” Hayes said.

American Airlines: “We have not yet put a dollar value on it”

Executives for American Airlines (AAL) joined the chorus of other major airlines citing the government shutdown as having a negative impact on their business. However, they weren’t ready to specify the exact financial impact as a result of the shutdown.

“We have seen some impact, but there is a lot of uncertainty as to kind of what’s going to happen going forward,” Donald Casey, senior vice president of revenue management, said during a call with investors discussing fiscal fourth-quarter results. “So, we have not yet put a dollar value on it. But what we’ve seen to date is included in our guidance for the first quarter.”

American Airlines said it anticipates revenue per available seat mile to be flat to up 2% for the fiscal first quarter of 2019. Casey added that American Airlines has not seen any slowdown in bookings “anywhere in the system” and that “corporate demand continues to be strong.”

Marriott International: Shutdown is causing “double-digit” declines

Marriott International (MAR), a Bethesda, Maryland-based hotel chain with operations in about 130 countries, is seeing its business in Washington, D.C., get hit as a result of the shutdown.

“It is impacting our business, and Washington, D.C., is just one example. We have 150 hotels, and they’re seeing a decline in business, double digits, as a result of this,” Stephanie Linnartz, Marriott International global chief commercial officer, said in an interview with Yahoo Finance at the World Economic Forum in Davos, Switzerland. “Both sides need to get together and start talking.”

Marriott’s self-reported declines incarnate concerns other analysts have brought up of the travel industry as a result of the shutdown. Bank of America Merrill Lynch analysts in a research note highlighted downside risks to hotels with exposure to the D.C. area. Jan Freitag, senior vice president at lodging data provider STR, warned that closures in D.C. will lead travelers to skip out on travel to the nation’s capital, he told Bloomberg. And Robert W. Baird analysts wrote that the hotel industry at large would be negatively impacted as government contractors avoid leisure travel in the wake of the shutdown.

American Express: “A little bit of uncertainty” due to the shutdown

Executives for credit payment company American Express (AXP) cited the government shutdown among a host of factors that could contribute to economic weakness, which could in turn impact the company’s performance in 2019.

American Express said in its latest earnings report that it expects full-year 2019 revenue growth of 8% to 10%, after having delivered $40.34 billion in revenue for 2018. The New York-based company expects full-year 2019 earnings to be between $7.85 and $8.35 per share, versus consensus expectations of $8.13 per share, according to Bloomberg data. But the company’s actual results within this range depend on several external factors, management said.

“In a world where 2019 turns out to look something like 2018 in terms of the economy, you should expect this to be at the mid-to-upper end of the range, and the lower end of the range is there when you think about things happening in the equity markets, government is shutdown right now, a little bit of uncertainty,” Jeff Campbell, American Express CFO, said during a call with investors discussing fourth quarter 2018 results. "So sure, if the economy weakens a bit, that’s at that lower end of the range for it.”

MSC Industrial Direct: “A shutdown initially softens demand”

MSC Industrial Direct Co. (MSM), one of the largest direct suppliers of industrial products in the U.S., cited the government shutdown as an overhang to the company alongside tariffs and lower oil prices.

“Historically, a shutdown initially softens demand, although it does create some pent-up spending, once the budget is approved and the shutdown ends,” Erik Gershwind, MSC Industrial president and CEO, said during a call with analysts discussing quarterly results.

MSC Industrial reported in a filing that its government end-market comprised 8% of the company’s sales for its fiscal first quarter. MSC government customers include the General Services Administration and Department of Defense.

US Capitol dome, Washington, DC, graphic element on black
US Capitol dome, Washington, DC, graphic element on black

Sodexo: There will be “some impact” for government agency-related businesses

International companies with operations in the U.S. are also bracing for the shutdown to affect their businesses.

Marc Rolland, chief financial officer for Sodexo (SW.PA), a French food services company, said the company will “start feeling some impact,” for its contracts in Washington, D.C. Sodexo’s U.S. clients include the Air Force, Army, Department of Defense retail operations, Department of Homeland Security, Government Civilian Agencies, Marine Corps and U.S. Navy. The Department of Homeland Security is among the agencies directly affected by the partial shutdown, with an estimated 32,000 of the 245,000-person DHS workforce working without pay.

“We have a good government agency business in the U.S., so, yes, there will be some impact,” Rolland said during a call with analysts. “It’s a little too early to say how much, but we will be tracking this and update you if this if this is becoming significant, but we’re not expecting this to be major.”

Franklin Covey: Fiscal second-quarter revenue growth will slow due in part to shutdown

Franklin Covey (FC), a global consulting and professional develop services firm, said it expects its fiscal second-quarter revenue will grow at a slower rate due to impact from the shutdown.

Stephen Young, CFO of the Utah-based firm, said the company anticipates its revenue to grow at a rate of between 4% and 6% in the fiscal second quarter before returning to high-single digit revenue growth in the third and fourth quarters.

“[This] allows for some expected impact of our government business from the current federal government shutdown,” and for spill-over impact from an education division contract that was not renewed, Young said. He characterized “normal” revenue growth for the company to be between 7% and 9%.

Lindsay Corporation: Shutdown is “negatively impacting farmer sentiment”

Nebraska-based manufacturer Lindsay Corporation (LNN), which produces farm and construction machinery in addition to road and railroad equipment, noted that the government shutdown has impacted sentiment, if not infrastructure or agricultural aspects of the company at this point.

The shutdown is “negatively impacting farmer sentiment given anticipation that there were going to be funds coming to them through the government,” CEO Tim Hassinger said on a call with investors. “That has created a challenge.”

After the first week of the shutdown, farm loans and farm payments – including direct payments, market assistance loans and disaster relief program funds – were no longer being processed, according to a statement from the U.S. Department of Agriculture.

This post was updated Jan. 24 with additional commentary.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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