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Travel Warnings, Caterpillar Gloom, Car Output: Virus Impact

Bloomberg News

(Bloomberg) -- The number of Chinese provinces that will stay shut for another week has widened as China tries to contain a coronavirus outbreak. At least two-thirds of the economy is now on extended idling, including regions that are home to a newly-built Tesla Inc. plant, Nike Inc. factory and a large Foxconn plant that makes Apple Inc. iPhones.

Caterpillar Inc., a worldwide barometer for manufacturing, provided a downcast outlook for 2020 on Friday, adding it is monitoring the virus closely. Automakers probably will dial back production by 15% in China this quarter due to the extended holiday shutdowns, a top supplier said. Japanese cosmestics maker Kose Corp. also cut its forecast, citing a drop in Chinese tourists.

Here is a rundown of how some of the biggest companies are responding to the rapidly spreading SARS-like virus that is threatening a key growth market:

Manufacturers

The biggest carmakers, including Toyota Motor Corp., General Motors Co., Ford Motor Co. and Volkswagen Group China’s two joint ventures, have halted production until at least Feb. 9 as the government extended the traditional Lunar New Year holiday by a week. Ford also has ceased all China-related business travel into and out of the country.Aptiv Plc, which makes safety and electrification systems for customers including Volkswagen and GM, anticipates auto output will drop 15% in China this quarter. It sees its own production down 11% from a year ago.Tesla expects a delay of up to a week and a half in the middle of its planned ramp-up of production at its new Shanghai plant -- its first outside the U.S. Chief Financial Officer Zach Kirkhorn said Jan. 29 that the delay “may slightly impact profitability for the quarter” and Tesla is monitoring whether there will be supply-chain interruptions for cars built in California.Apple earlier this week provided a wider-than-usual forecast range for the current quarter because of the uncertainty surrounding the coronavirus. Virtually all iPhones are made by Foxconn’s Hon Hai Precision Industry Co. in Zhengzhou, China, and by Pegatron Corp. at an assembly site near Shanghai. Apple also closed some stores.Robert Bosch GmbH CEO Volkmar Denner said the two factories that the world’s largest car-parts maker operates in Wuhan, the city at the epicenter of the outbreak, are idle. The German manufacturer employs 800 people at the sites that make steering components and thermal systems. “We’re monitoring how the situation develops to see if production might be down for longer,” Denner told reporters on Jan. 28 in Stuttgart, Germany. “We’re concerned.” Denner said it might take until February or even March before the virus peaks.Coca-Cola Co. said Jan. 30 that offices are closed in China and many factories are also shut. However, with the government’s permission, the beverage giant has re-opened some facilities. Chinese authorities want to ensure the population has access to food and beverages, Chief Executive Officer James Quincey said on a Jan. 30 earnings call.

Travel

Airlines across the globe suspended more flights to China as the U.S. and Japan advised citizens to avoid travel to the country. Delta Air Lines Inc. and American Airlines Group Inc. said Jan. 31 they were halting service to China. Japan-based carrier ANA said earlier it may need to considering canceling China flights, Kyodo News reported, citing the airline’s president, Yuji Hirako.European carriers led by British Airways and Deutsche Lufthansa AG earlier said they would pull back.United Parcel Service Inc. is taking actions to make sure its staff in China stays protected from the disease. “We’re providing them with thermometers so they can constantly monitor themselves and giving them masks and other safety equipment,” CEO David Abney said in an interview Jan. 30.The UPS Foundation said it would fly protective gear to China for free to help fight the spread of coronavirus in Wuhan. The airlift includes 2 million respirator masks, 11,000 protective coveralls and 280,000 pairs of nitrile gloves, the courier said in a statement Jan. 31.

Retail, Fashion

Starbucks has closed more than half of its coffee shops in mainland China -- about 2,000 locations. The company maintained its 2020 forecast but said the projections don’t include the impact of the closings because it can’t yet calculate it. Compared with McDonald’s and Domino’s Pizza Inc., Starbucks is the most exposed to the outbreak, as measured by percentage of worldwide revenue and operating income, according to Guggenheim analyst Matthew DiFrisco.McDonald’s has closed several hundred restaurants in Hubei province, where Wuhan is located. The fast-food chain still has about 3,000 locations open in the country, executives said during a Jan. 29 call with analysts. China accounts for about 9% of the Chicago-based company’s global restaurants but makes up just 3% of operating income.Levi Strauss & Co. has closed half of its stores in China, including a brand new flagship in Wuhan that opened just four months ago. The clothing company said Jan. 30 that it also stopped all employee travel in and out of China. “This will put a damper on our growth in China in the near-term,” CEO Chip Bergh said on an earnings call. Mainland China is still a small part of the business, though, accounting for 3% of the total.Ikea is closing all its mainland stores from Jan. 30 as the home-furnishings giant monitors the development of the epidemic.Kose on Jan. 31 was among the first Japanese cosmetics makers to cut its outlook because the virus. The company cited declining Chinese tourists coming to Japan.LVMH, the world’s largest luxury-goods maker, said the crisis may start easing near the end of the first quarter. Chairman Bernard Arnault said that advisers have suggested the peak impact should be reached over the coming weeks and the crisis may be partially resolved by the end of March. He cautioned that the outlook could prove inaccurate, however.The world’s biggest glovemaker, Top Glove Corp., expects sales to increase about 25% due to coronavirus outbreak. That’s up from its initial full-year target of 10% to 15%, Executive Chairman Lim Wee Chai said in emailed response to questions.Yum China Holdings Inc. temporarily closed most of its KFC and Pizza Hut stores in Hubei province until further notice.Fast Retailing Co.: The operator of the Uniqlo casual clothing chain has temporarily shut 130 of its China stores, a spokeswoman said. That’s equal to about a fifth of its mainland locations.Ryohin Keikaku Co.: Owner of the Muji clothing and housewares brand has closed some stores in Wuhan, according to a spokesman.

Wuhan has more than 500 factories and other facilities, placing it 13th among 2,000 Chinese cities in Bloomberg’s supply chain database. It’s the capital of Hubei province, which has 1,016 facilities, making it seventh of 32 such jurisdictions. Many plants are in the auto and transportation industries.

--With assistance from Leslie Patton, Mark Gurman, Richard Clough, Phil Kuntz, Mary Schlangenstein, Yukari Chilnik, Christoph Rauwald, Justin Bachman, Deena Shanker, Thomas Black, Gabrielle Coppola, Siddharth Philip, Kyunghee Park and Gearoid Reidy.

To contact Bloomberg News staff for this story: Cécile Daurat in Wilmington at cdaurat@bloomberg.net

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, ;Kazunori Takada at ktakada17@bloomberg.net, Jonathan Roeder

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