Category: Market trends

This week, the IMF downgraded their previous forecast of a 3% decline in global GDP, now predicting a 4.9% decrease this year. Dubbed the ‘Great Lockdown’, the current economic crisis is “unlike anything the world has seen before”, devastating the global labor market and causing an “unprecedented decline in global activity.”

In response to these unprecedented circumstances, companies have taken to cost-cutting measures in an effort to stockpile cash. One such measure is the ongoing phenomenon of executive compensation cuts, which started in late March.

 

Takeaways:

• Rollins, Darden Restaurants and Ross Stores have already reinstated executive pay after their initial cuts
• CEOs at Ross Stores, GE and Ford among others are forgoing 100% of their base salaries for a portion of time; more typical executive pay cuts range from 15-50%
• While some companies are providing specific timeframes for the cuts – ranging from 2 months to the remainder of 2020 – others have provided no guidance on when they expect the cuts to end
• Major corporations in the travel industry including United Airlines, Delta, Booking Holdings and Hilton were among the first to cut executive pay in March, while others have continued to execute on new policies as late as mid-May

Below, we’ve compiled a non-exhaustive list of major companies and their executive pay policies that have implemented executive compensation cuts since March.

AlphaSense can track emerging trends in real-time by industry, watchlist, and across the market. We expect this to be an interesting theme to follow as reopening plans continue to shift and cost-cutting measures continue. Start your free trial of AlphaSense now or login to your account.

Beginning in March, airlines, travel and energy companies became the first major corporations to cut executive pay as a cost-cutting measure amidst COVID-19 pressures.

Consumer Discretionary and Industrials companies, including airlines and automakers, have cut back executive pay more heavily than peers in other industries.

Company	Sector	COVID Policy	Date Announced	Term of Compensation Reduction	Policy Updates
Union Pacific	Industrials	Every executive to take a 25% salary cut	5/27	May 1 – August 31
Keysight Technologies	Information Technology	Temporary reduction in executive base salaries (100% for the CEO, 50% for senior vice presidents)	5/26	Remainder of 2020
Corning Inc	Information Technology	Base salary of the Company’s CEO will be reduced by 40% and each of the other named executive officers’ salary will be reduced by 30%. Each non-employee director’s cash compensation will be reduced by 40%.	5/20	Remainder of 2020
Xylem	Industrials	Temporary 20 percent reduction in the base salary of the Company’s Chief Executive Officer (“CEO”) and all direct reports to the CEO.	5/19	Remainder of 2020
Pioneer Natural Resources	Energy	20% decrease in the annual base salary CEO, a 15% decrease in the annual base salaries of the Company’s other executive officers, including the “named executive officers” whose compensation has been disclosed in the Company’s proxy statement for its 2020 Annual Meeting of Stockholders, and a 10% decrease in the annual base salaries of the Company’s other officers.	5/8	Indefinite
Fleetcor Technologies	Information Technology	Cut CEO salary by 100% and other executive’s salary by 50%	5/7	Not Provided
Weyerhaeuser Company	Real Estate	Members of the company’s senior management team and board of directors have elected to reduce their compensation for the remainder of 2020. This includes a base salary reduction of 30 percent for the company’s CEO and base salary reductions of 10 percent for the remainder of the senior management team, as well as a 20 percent reduction in fees for the board of directors.	5/1	Remainder of 2020
Aon Plc	Financials	Reduce the annual base salaries of the Company’s named executive officers and the cash compensation of each of the Company’s non-executive directors. Each of the named executive officers and non-executive directors have agreed to a temporary 50 % reduction in his or her cash compensation.	5/1	Remainder of 2020
Parker-Hannifin Corp	Industrials	Officers are in the 20% to 30% range and CEO at 50% salary reduction.	4/30	90 days
ABIOMED Inc	Healthcare	Our CEO and COO have reduced their salaries by 100%, VPs and Directors have reduced their salaries by 50% and 20%, respectively, for the quarter.	4/30	April 1 – June 30
OpenText	Information Technology	15% base salary reduction and 15% reduction in target annual variable cash compensation for our other Named Executive Officers and members of the executive leadership team (ELT);   10% base salary reduction and 10% reduction in target annual variable cash compensation, as applicable, for Vice-President- director-, and manager-level employees;	4/30	May 15 , 2020 – June 30, 2021
IDEXX Laboratories, Inc	Healthcare	Temporary reduction of the salaries of our chief executive officer by 30%, officers and senior executives by 20% and the majority of other salaried employees by 10%, as well as the suspension of cash compensation for IDEXX’s Board of Directors.	4/30	Not Provided
Eaton Corporation PLC	Industrials	Reduction of senior executive base salaries in the second quarter	4/30	Q2
Zebra Technologies	Information Technology	Temporary salary reductions for the Company’s Executive Officers. Base salary payments will be reduced by 30% for the Company’s Chief Executive Officer and 20% for the other Executive Officers, which include the Company’s Named Executive Officers (as named in the Company’s 2020 Proxy Statement filed on April 2, 2020). Base cash retainer payments for the applicable period for the members of the Company’s Board of Directors will be reduced by 30%.	4/30	Three months
C.H. Robinson Worldwide Inc	Industrials	Temporary salary reduction for company executive officers	4/29	Not Provided
CGI Inc	Information Technology	Independent members of the Board and corporate Executive Vice Presidents have taken significant salary reductions.	4/29	Not Provided
Waters Corp	Healthcare	Base salary reduction of 40% for the CEO; 30% for Executive Committee members and 20% for Vice-Presidents.	4/28	90 days
Southwest Airlines	Industrials	Reduced named executive officer salaries and Board of Director cash retainer fees by 20 percent	4/28	Not Provided
Tesla	Industrials	Base salaries of our named executive officers were reduced by 30%.	4/28	Not Provided
Stryker	Healthcare	CEO will receive a 50% reduction in base salary, and the other named executive officers will receive between a 20% to 30% reduction in base salary. In addition, the Board determined that each non-employee member of the Board will forego 50% of his or her cash retainer fees payable for Board service for so long as the named executive officer salary reductions remain in place.	4/27	Not Provided
WW Grainger	Industrials	Reducing short term executive pay	4/23	Not Provided
Freeport-McMoran	Materials	25% reduction in the base salary of CEO and CFO effective May 1, 2020 through the remainder of 2020	4/23	Remainder of 2020
Heineken	Consumer Discretionary	Executive Board and the executive team have jointly decided to cut their base salary by 20% between May and December 2020 as a show of solidarity with the company and employees affected by this crisis	4/23	Remainder of 2020
Rollins	Industrials	Gary W. Rollins, Vice Chairman and Chief Executive Officer: from $1,100,000 to $715,000; Paul E. Northen, Senior Vice President, Chief Financial Officer and Treasurer: from $550,000 to $412,500; R. Randall Rollins, Chairman of the Board: from $1,000,000 to $650,000; John F. Wilson, President and Chief Operating Officer: from $850,000 to $552,500; and Elizabeth B. Chandler, Vice President, General Counsel and Corporate Secretary: from $400,000 to $300,000.	4/22	Not Provided	Restored to previous salaries on June 11
Exact Sciences	Healthcare	Reduction of the CEO’s base salary to effectively zero (excluding amounts to cover benefits and taxes) and elimination of the Board of Directors annual cash retainer	4/21	Not Provided
Associated British Foods	Consumer Staples	Executive directors to reduce their base pay temporarily by 50% and that no bonuses relating to the current financial year will be paid to them. In addition, the non-executive directors of the board fees are reduced temporarily by 25%.	4/21	Not Provided
GE	Industrials	CEO to forego 100% of salary and our head of Aviation to forego 50% of his salary for the remainder of 2020	4/21	Remainder of 2020
Lululemon	Consumer Discretionary	Senior leadership team will reduce their base salaries by 20% for three months in fiscal 2020, and members of our board of directors will forgo their cash retainer for that same period	4/20	Three months
Estee Lauder	Consumer Discretionary	Base salary for each of the Company’s Named Executive Officers will be reduced as follows: Named Executive Officer Base Salary Reduced by: William P. Lauder, Executive Chairman 50% Fabrizio Freda, President and Chief Executive Officer 50% Tracey T. Travis, Executive Vice President and Chief Financial Officer 30% John Demsey, Executive Group President 30% Cedric Prouvé, Group President – International 30%	4/15	May 1 – October 31
Burlington Stores	Consumer Discretionary	CEO will not take a salary, the Company’s Board of Directors will forfeit their cash compensation, and the Company’s executive leadership team has voluntarily agreed to decrease their salary by 50%	4/13	Not Provided
Fiserv	Information Technology	CEO and COO to forgo 100% of the base salary, and Robert Hau, Devin McGranahan and Byron Vielehr have each agreed to forgo 20% of the base salary; provided that, in each case, such reduction will not include the portion of an executive’s base salary necessary to fund continued participation in the Company’s health and welfare benefits plans.	4/10	Not Provided
Kering	Consumer Discretionary	CEO to reduce the fixed portion of his salary by 25% from April 1, until the end of 2020. Two Group Managing Directors, decided to waive the entirety of the variable portions of their annual remuneration for 2020.	4/10	Remainder of 2020
Best Buy	Consumer Discretionary	Temporary base salary reductions for Ms. Barry and her direct reports, including Mr. Bilunas, Mr. Mohan, Mr. Alexander and Ms. Scarlett, for the period from April 12, 2020 through September 1, 2020. The base salary for Ms. Barry was reduced by 50% and the base salaries of the other named executive officers were reduced by 20%	4/9	April 12 – September 1
Microchip Technology	Information Technology	20% salary cut for CEO, President, and other executive staff members (including our other named executive officers) effective April 20, 2020. In addition, the Microchip board of directors approved a 20% cut in their cash compensation effective April 20, 2020.	4/9	Not Provided
Telus Health	Healthcare	CEO will forgo his salary for the 3 months of April, May and June 2020, and donate it to Canadian healthcare workers on the front lines, battling COVID-19.	4/8	April 1 – June 30
McDonald’s	Consumer Discretionary	CEO voluntarily offered a 50% reduction in base salary and the other Named Executive Officers offered a 25% reduction in their base salaries for the period April 15, 2020 to September 30, 2020, subject to extension if the situation warrants.	4/8	April 15 – September 30
PPG Industries	Materials	The base salaries of the named executive officers of the Company will be reduced by the following percentages: Michael H. McGarry, Chairman and Chief Executive Officer: 30% Timothy M. Knavish, Executive Vice President: 25% Rebecca B. Liebert, Executive Vice President: 25% Vincent J. Morales, Senior Vice President and Chief Financial Officer: 25%   Ram Vadlamannati, Senior Vice President, Protective and Marine Coatings and President, PPG Europe, Middle East and Africa: 20%	4/8	April 8 – September 30
Zimmer Biomet	Healthcare	Temporary reductions in the base salaries of the Company’s named executive officers. CEO will temporarily forgo his entire base salary and the other named executive officers will temporarily be subject to a 25% reduction in their base salaries, in each case until such time as the Committee may determine in its discretion.	4/8	Not Provided
Rockwell Automation	Industrials	25% salary reduction for CEO, 15% salary reductions for all Senior Vice Presidents. The Board of Directors has also reduced its cash fees by 50%.	4/8	Not Provided
Marriott International	Consumer Discretionary	CEO to receive no base salary (except as necessary for benefit deductions) for the remainder of the year and the other NEOs to receive 50% of their base salary for the remainder of the year, in each case beginning in April 2020.	4/8	Remainder of 2020
Ross Stores	Consumer Discretionary	Ms. Rentler, Mr. Balmuth, Mr. Hartshorn, Mr. Kobayashi, Mr. Morrow, and Mr. Marquette have agreed to a reduction in their salaries by 100%, 100%, 50%, 40%, 40%, and 20%, respectively, until at least 50% of the Company’s stores closed due to COVID-19 and related impact re-open.	4/7	April 1 – at least 50% of stores re-open	Reinstated on May 24th when 50% of stores reopened
TJX	Consumer Discretionary	Base salary of both CEO and Executive Chairman, will be reduced by 30%, and the base salary of each other executive officer of the Company will be reduced by 20%. The ECC also approved salary reductions for other senior executives of the Company, and the Board of Directors of the Company agreed to a reduction in its cash retainer fees.	4/7	April 12 – July 4
CBRE	Real Estate	CEO will forgo 100% of his base salary and each other executive officer of the Company that is a direct report of the CEO will forgo 15% of his or her base salary, in each case, until it is determined that such salary decreases are no longer warranted.	4/7	Not Provided
Darden Restaurants	Consumer Discretionary	The base salary for named executive officers will be reduced by 50%. Base salary of CEO was reduced to approximately zero in March.	4/7	Not Provided	CEO and named executive officers pay reinstated June 1
VF Corp	Real Estate	Temporary fifty percent reduction in base salary CEO, and a temporary twenty-five percent reduction in base salary for the rest of the Company’s Executive Leadership Team, including the current named executive officers.	4/7	Reassessed in four months
Cummins Inc	Industrials	A reduction of 50 percent in the salary of the CEO   A reduction of 25 percent in Director compensation	4/3	Not Provided
HCA Healthcare	Healthcare	30 percent reduction in base salary for the Company’s named executive officers and other executive officers. Waiver of all cash compensation retainers for non-management board members for the period from April 1, 2020 through December 31, 2020	4/2	April 1 – May 31	Extended through June 30th
Boston Scientific	Healthcare	All executive officers and other named executive officers, will be taking a temporary reduction in base salary for up to 6 months. CEO will forgo his base salary. CFO and each of our other named executive officers, including, Kevin Ballinger, Joseph Fitzgerald, and Edward Mackey, will be taking a 50 percent reduction in base salary.	4/2	Effective April 13, expected to last for up to 6 months.
Simon Property Group	Real Estate	CEO elected to reduce his base salary to zero, (ii) Steven E. Fivel, the General Counsel and Secretary of the Company, and John Rulli, the President of Malls – Chief Administrative Officer of the Company, have each agreed to reduce their respective base salaries by 30%, and (iii) Brian J. McDade, the Executive Vice President, Chief Financial Officer and Treasurer of the Company, and Alexander L.W. Snyder, the Assistant General Counsel and Assistant Secretary of the Company, have each agreed to reduce their respective base salaries by 25%.	4/2	Not Provided
Occidental Petroleum	Energy	CEO reduced base salary by 81%. The base salary of the other named executive officers was reduced by an average of 64%.	4/1	Not Provided
IHS Markit	Professional Services	50% decrease from the current salary CEO and a 40% decrease in the current salary of the other named executive officers;	3/30	Remainder of 2020
Ford	Consumer Discretionary	Base salary deferrals will be 100% of salary for the Executive Chairman, and 50% of salary for each of the President and Chief Executive Officer, the Chief Operating Officer, and the Chief Financial Officer. William Clay Ford, Jr., will defer 100% of his cash salary during the same period	3/26	At least 5 months
Hilton	Consumer Discretionary	CEO will forgo his salary for the remainder of 2020; the Executive Committee will take a pay cut of 50 percent for the duration of the crisis;	3/26	Remainder of 2020
CANADIAN NATURAL RESOURCES LIMITED	Energy	President’s annual salary has been reduced 20%, while other members of the Management Committee will have annual salaries reduced by 15% and Vice-President positions will have annual salaries reduced by 12%. Concurrently, the Board of Directors has also agreed to reduce their annual Board cash retainer by 10%.	3/18	Not Provided
Delta	Industrials	All Delta officers will take a 50 percent pay cut through June 30, with directors and managing directors taking a 25 percent cut during that same period. CEO cut salary by 100 percent for six months. Our Board of Directors elected to forego their compensation over the next six months as well.	3/18	Six months
United Airlines	Industrials	Cut CEO base salary 100% and deferring a salary increase.	3/16	Not Provided
Booking Holdings	Consumer Discretionary	CEO, along with our brand CEOs, have voluntarily waived our salaries during this crisis. Board of Director members have waived their cash fees for the remainder of 2020. Other executive officers have voluntarily waived 20% of salaries	3/15	Not Provided

A trifecta of pent-up demand, warm weather, and stimulus money contributed to the record surge. In the span of weeks, retailers have had to readjust their strategy and operations to accommodate capacity restrictions and new modes of shopping like curbside pickup. While the increase is promising, companies preface these emerging trends with reminders that growth and sales have not returned to pre-COVID levels.

States and stores slowly reopened in May and the impact is captured by the 17.7% increase in U.S. monthly retail sales from April to May. The increase is the highest month-over-month change in retail sales ever.

Continue reading “Retail Sales Rebound by Record Rates in May”

Almost 9 months into a global pandemic marked by global lockdown measures and store closures, the economic impact of the coronavirus pandemic has been stark. One outcome of these challenging times is a distinct rise in bankruptcy filings. The month of May saw an almost 50% YoY increase in Chapter 11 filings and the filing pace continues to mount, albeit at a slower pace than we saw this spring.

While the pace has slowed, the trend is far from over. Some of the hardest hit sectors, including restaurants and brick-and-mortar retailers, continue to see major companies file weekly. Analysts are still keeping an eye on another wave of bankruptcies in the coming months, with eyes on the hard-hit energy and consumer discretionary sectors, both of which have seen heightened levels of industry chatter around restructuring, downgrades and negative outlook for months on end.

Industry chatter on bankruptcies, restructuring, and negative outlook has sharply increased over the past twelve months. AlphaSense users can see the search here. Don’t have platform access and would like to track real-time bankruptcy chatter? Request complimentary access here.

Below, we’ve compiled a non-exhaustive list of companies that have filed since the beginning of March when global pandemic lockdown measures were implemented.

 

Companies have been consistently filing for bankruptcy since early March, with the pace sharply increasing in April. Although the pace has slowed, major chains like FIC Restaurants and Ruby Tuesday’s, as well as two large mall operators, Pennsylvania Real Estate Trust and CBL Properties have all filed within the past month.

 

Consumer discretionary and energy companies have been hit the hardest during the pandemic and analysts predict further bankruptcies on the horizon. Amongst the hardest hit businesses, retailers, movie theaters, energy companies, restaurant groups and international airlines have all succumbed to bankruptcy filings due to COVID-19.

 

The OECD released a statement this week warning that COVID-19 has triggered the most severe recession in nearly a century. As analysts consider the shape of the recovery, they are at the mercy of exogenous factors like tension between China and the US, a potential second wave of COVID-19, and the development of a vaccine.

Many investors are looking to lead financiers for guidance on consumer spending and borrowing across geographies as a short-term solution to tracking economic health. We’ve compiled a snapshot of executive commentary from industry leaders like Visa, CitiGroup, Mastercard, and Bank of America to help you stay informed.

 

Takeaways:

• Consumer spending hit a low in mid-April and has been improving into May although it’s still down year-over-year. There’s a great deal of choppiness and significant declines in travel, dining, and entertainment.
• Borrowing overall is down, but mortgage is strong. This is likely because interest rates are low currently – there is a demand to borrow as well as refinance.
• Debit is out-performing credit. People are being conservative and spending what they have. Additionally, most government stimulus funds were deposited into checking accounts.
• Travel has not ticked-up significantly and Financial Services companies are being impacted by a decrease in cross-border spend and FX revenue.
• As countries open up, consumer spend increases significantly. For example, Visa saw growth improve by 60 percentage points when New Zealand opened up.

 

AlphaSense can track emerging trends in real-time by industry, watchlist, and across the market. We expect this to be an interesting theme to follow as countries plan to reopen. Start your free trial of AlphaSense now or login to your account.

 

Visa Inc – RBC Financial Technology Conference (6/11)

Question – Daniel Rock Perlin: So at a high level, I thought we would start off, the economic environment remains very fluid. Visa, in many ways, represents kind of the pulse of consumption around the world. And so I was hoping you could give us kind of an update on what you’re seeing and the insight of current trends that you’ve been releasing maybe even through May and just kind of frame that for the investment community, if you could?

Answer – Ryan M. McInerney: Sure. I’d be happy to. We just actually issued an 8-K last week so it’s very timely. I’ll go through the data that we’re seeing around the world, and I’ll try to do it in a fair bit of specificity just to try to help your audience.

If you start in the U.S., overall spending was still declining in the month of May. If you look at the month of May, it had declined 5% overall, but May was 13 percentage points better than April. So spending has steadily improved from not just April to May but actually week-over-week since really mid-April we’ve seen improvements in spending.

Debit continues to pretty significantly outperform credit. Debit actually had positive year-over-year growth since late April. And it grew 12% in the month of May. So debit was positive 12% growth in the month of May. Credit improved in May by 9 percentage points, but it was still a negative 21% year-over-year growth in the month of May. And the fact that debit is outperforming credit is not surprising. People tend to want to use the money they have in times like this versus money that they might be borrowing. Plus, we’ve seen the spend mix shift away from more discretionary items where credit is often used or preferred by consumers. And then, you add to the fact that most of the government stimulus funds were deposited into checking accounts, where people use their debit card to spend those money. So debit continues to outperform credit by a fair bit and not totally surprising.

And then if you looked at card-not-present spending. And the way that we look at card-not-present spending in the U.S. is card-not-present spending excluding travel. Growth remained at elevated levels in May. We saw a positive 30% year-over-year from late April onwards while we’ve seen kind of continued e-commerce adoption. Card-present spending was down 50% year-over-year in April and it exited May declining in the mid-20s. So we’re really starting to see as states in the U.S. start to reopen more people are going out, they’re using their Visa cards, and we’ve seen a reasonably large improvement in card-present spending as well.

And then if you look at the industry segments, kind of merchant segments still sticking in the U.S. in May. You have a few segments that have outperformed really throughout the whole crisis. Grocery and drugstores continue to perform well. As an example, we’ve seen big adoption in online grocery and drugstore spending. And then you’ve got a few segments that, I think, most people would expect have been hit really hard and they’ve been continued to hit really hard. Restaurant spending is down significantly and remains down in May. Quick-service restaurants are performing better than traditional sit-down restaurants. But overall as a segment, it’s been hit really hard.

And then if you go outside the U.S., it’s interesting. Europe, Canada, Australia, Japan have performed very similar to the U.S. So very similar to the trends that I just described. There’s a number of markets though that still have very heavy restrictions in place but opening up much more slowly, countries like India and Singapore, so their spending levels remain much lower.

And then we’ve really been closely tracking some of the countries around the world that have really started to open up. You got markets like New Zealand and Denmark and Chile. New Zealand is an interesting one. I mean, New Zealand is getting close to back to normal as it relates to domestic spending. The borders are pretty much closed. And you look at the change in spending that happened when they opened up, it was dramatic. We saw growth improve by 60, 6-0 percentage points when New Zealand opened up. And the spending levels had remained elevated through kind of the back half of May. So that gives us some indication of what can happen in at least these countries when things really start to open up.

 

Citigroup Inc – Morgan Stanley Virtual US Financials Conference (6/10)

Answer – Betsy Lynn Graseck: No. That’s great. While we’re on the topic of consumer and card, which you raised from an operational perspective, but it would be good to understand some of the client updates that you’re getting some window on here. And that — let’s kick off with the U.S. consumer. Your Citi-branded card and your retail services businesses give you a great window on what’s going on with the U.S. consumer, what they’re thinking, how they’re spending. Maybe you can give us an update on what you’re seeing now versus mid-April and then talk a little bit about how sustainable you think that could be and how you’re preparing for the next couple of quarters here.

Answer – Mark A.L. Mason: Yes. Sure. Look, I mean, we’ve obviously been looking at spend levels. We’ve been talking about purchase sale volumes coming out of the first quarter. And what I’d say is a spend on credit cards has started picking up in certain categories, certainly relative to the depressed levels that we saw through the middle of April, but they’re still significantly lower versus a year ago. In the U.S. cards business, the overall spend started to pick up with May purchase sales down by roughly 20% year-over-year. So still down year-over-year, but better than the mid-30s decline that we were seeing in the middle of April. And you’ve heard us speak about the idea that there’s a great deal of choppiness and significant declines in travel and dining and entertainment which were now roughly 75% in May. And while the essentials that people continue to obviously need and spend on was tracking above last year’s levels. And so there’s improvement but still down year-over-year. And I think a lot of how this — how sustainable it is or how this continues to trend is going to depend on the pace and success of the reopenings, which we’re starting to see in phased levels and varying degrees across the U.S. But how customers behave as those restrictions ease and how quickly businesses are able to ramp up, frankly, to meet what would then be new demand will be important factors in determining that sustainability, right? And we’re watching it carefully to see how our clients who are impacted by the pandemic are able to get back to work and to a more certain future. So there are a fair amount of kind of unknowns that still need to play out as we think about that.

I mean, in our — if I think about the impact that customers have had and now trying to resume some sense of normalcy in our U.S. consumer business, in that business, we provided assistance and relief to over 1.5 million consumers, and that represents somewhere between 4% and 5% of our balances across the cards and mortgage portfolio, right? That includes payment deferrals and late fee waivers and moratoriums on foreclosures and evictions. I think the hopeful signs that we’re seeing — the hopeful sign that we see is that many of those same customers have continued to make their regular payments despite having that relief. And that suggests that the government’s aid has been effective in helping those that have been hit by the crisis. And we’ve had a similar practice internationally where we’ve provided similar programs in line with those local regulatory guidelines. And so we’re now kind of preparing to help our customers as they roll off of those programs and to make sure that we can assist them as appropriate. But lots of moving pieces still, right?

 

Capital One Financial Corp – Morgan Stanley Virtual US Financials Conference (6/10)

Answer – Betsy Lynn Graseck: Okay. I guess the other question I have here on the consumer side is how are you seeing spend? Obviously, you’ve got a big card business and platform. Maybe give us some color on what you’re seeing there, different types of spend as well as geographies open versus closed?

Answer – Terrance R. Dolan: Yes. And maybe kind of playing off of spend a little bit in terms of loan balances or maybe what we’re seeing on the consumer side. Clearly, the credit card balances are down a bit, and that’s tied to the fact that the consumer spend is lower. But we’re also seeing, on the auto side of the equation, some strengthening occurring here now in May as some of the markets have been opening up. Coming back to your question with respect to spend patterns. Again, maybe it’s helpful, I’ll talk about our payments business and kind of the 3 components. And as a reminder, merchant represents about 7% of our overall revenues. Credit card and debit card revenue represents about 6% from a fee-based perspective. And then CPS represents about 3% of our revenues. At the end of April — or excuse me, at the end of March, merchant was actually down about 50% to 60%. And now at the end of May and June, that’s more like 30%. So it’s actually continually and steadily gotten better during the May-June, May and early June sort of time frame.

In terms of credit card spend, that was down at the end of March by about 34%. And today, it’s recovered to being down about 16%, so again, steady, continuous improvement. In terms of debit card spend, it was actually down about 16% at the end of March. And it’s up at this particular point in time, about 5%. So we’ve seen debit card spend being fairly robust, coming back.

The last area I would just talk about is in the commercial payment space. At the end of March, that was down kind of in that 30% range. In the first week in June, it’s down about 27%. So that hasn’t recovered quite as fast. And we think it’s companies continuing to manage their discretionary spend. And if consumer spend gets stronger, the corporate spend will start to get stronger. So we’re actually feeling better today than we were certainly 90 days — or 60 days ago.

 

US Bancorp – Morgan Stanley Virtual US Financials Conference (6/10)

Question – Betsy Lynn Graseck: Okay. Maybe we can switch gears and talk a little bit about what you’re hearing and seeing from your customers. What are your borrowing or payments customers asking for? Let’s start with just on the commercial side, your corporate clients. There is some at-risk industries that you outlined in the 1Q earnings release. And how are you working with these institutions?

Answer – Terrance R. Dolan: Yes. So Betsy, obviously, when you think about this particular situation, there are certain industries that are being more affected than others. And I would say, in general, small businesses are being more impacted or struggling more than some of the larger companies, at least that’s in terms of what we’re seeing today. When you think about the at-risk, some of those were struggling before, to some extent, in terms of the industry, simply because of structural changes that were occurring and they were being impacted by the transition to digital, et cetera. When you think about the energy or the retail sectors, those were already being impacted. And I think that the health care crisis has accelerated some of those issues that they’re facing. And then you have other industries where you think about the entertainment or strong lodging, et cetera, those are clearly impacted. We’re continuing to work with them. About 5% of customers overall in the corporate side of the equation have had some form of forbearance. That is more heavily weighted to small businesses. So from a small business perspective, about 11% of customers have asked for some form of forbearance, and we’ll have to kind of see how that ends up playing out.

If you think about Commercial Real Estate, Commercial Real Estate is more stressed in areas where — or industries like lodging or retail. And the impact of the stimulus program, the duration of the health care crisis, all those things are going to kind of come into play with respect to the customer base. What I would say is that when you think about our portfolio, whether it’s — let’s take Commercial Real Estate as an example. For the last 2 years or so, we have actually seen fairly flat growth in Commercial Real Estate, and that’s because from an underwriting perspective, we have continued to be very focused and very strong knowing that at some particular point in time, a recession was going to come. Now in addition, if you end up looking at the loans to value that we have in our portfolio, it’s about 60%. So we feel like we’re in a pretty good position with respect to Commercial Real Estate.

Our corporate customers are generally strong, middle-market, investment-grade sort of companies. And we think that they have both the financial resources and the liquidity in order to be able to sustain through this cycle. But it’s going to — they clearly are going to be stressed. And maybe just as a reminder, the at-risk industries represented about 11% of our overall portfolio in terms of commitments. So we believe that, that’s going to be manageable as we go through the crisis.

 

Wells Fargo & Co – Morgan Stanley Virtual US Financials Conference (6/10)

Answer – Betsy Lynn Graseck: I wanted to just kick off a little bit on what you’re hearing from clients in terms of how the economy is likely to evolve from here. From your consumer plans, from your corporate clients, what are you getting with regard to spend patterns and borrowing patterns that give you some insight as to how things are going?

Answer – John Richard Shrewsberry: Sure. There’s a lot there. So on the corporate side, I would say that people are dealing with mixed signals. We said the market seemed very strong on the one hand. Then we got that unexpected, not as bad as anticipated, unemployment trends a week ago. But I think on the ground, people are — they’re cautious. They’re — they have a liquidity preference. This is corporate customers in particular. And they’re very concerned about when the economy reopens, at what pace. Then you pile on the social unrest over the last couple of weeks has added even more uncertainty. So a relatively defensive posture, for sure.

On the consumer side, in borrowing patterns, obviously, mortgage is strong because rates are so low. You’ve got people now moving out of cities into suburbs, a range of things that have caused — in addition to refi, obviously, you’ve got plenty of demand for mortgage. Credit card down in borrowing levels, which reflects credit card purchase activity or spend activity. We’ll talk about that in just a second.

Auto was very quiet for a while because people weren’t going to dealerships during shelter-in-place, but that’s begun to open back up a little bit. And so the demand for auto loans is there.

Across corporates, on the borrowing side, we all, I think, saw a big spike in March as markets were closed and people wanted to stockpile liquidity. That has abated. Those balances have come back down. And I’d say there’s — and that you’ve seen it in the H8 data, but there’s not as much demand for corporate credit right now as people are behaving more defensively. There are people who are going to the market extending maturity, taking advantage of low rates, but incremental credit, other than just adding a little cash here or there isn’t creating big demand. On the — please, go ahead.

Answer – Betsy Lynn Graseck: No. Go ahead. No, your turn.

Answer – John Richard Shrewsberry: On the spending front, I’ve seen some of the other banks talking about what they’re seeing in their consumer businesses. So our debit card spend before COVID was up low to mid-single digits through the beginning of March, which is as it has been for some time. And obviously, we have a big debit card network and program. In late March, we had 3 weeks of down about 20%. By May 8, we got back to positive. So it was — through April, it was improving and then the week ending May 8. And this is the week this year versus the same week last year. So we’re up to about 3 weeks in a row of up low to mid-single digits in debit card spend, which is about where it was before March. Now that isn’t all employment related. That includes the benefit of stimulus and other things, I’m sure, that are running through people’s cash accounts.

In credit card, we were down mid- to high 30% same week year-over-year. We’re still down high teens as we sit here today in credit card spend. And the big losers there, the worst performers are travel, entertainment and restaurant. No surprise. I think we’ve been hearing that for some time. So hopefully that’s helpful.

 

JPMorgan Chase & Co – Morgan Stanley Virtual US Financials Conference (6/9)

Answer – Betsy Lynn Graseck: Got it. Okay. All right. Let’s turn to some of the client insights that you’re getting from how your consumers are behaving. Just wanted to get an update on spend patterns and borrowing patterns. Is there any differences in spend on geography, FICO or employer? And maybe you can give us a sense on the borrowing side as well. Is demand coming from existing? Or is it more coming from new?

Answer – Gordon A. Smith: Yes. The year started so strongly. And we talked internally about what would the next downturn be driven by. And in many conferences, people talked about — it’s — we’re in late cycle. I don’t think anything — anyone expected it to be a pandemic.

And if we look at debit and credit card growth, in January and February, we were solidly at 9% growth. That dropped to about 5% in March. And in April, consumers really retrenched aggressively, debit and credit spend down for us 23%. We then, as May began to progress, began to see some improvements. We were down — these numbers are year-over-year, Betsy. We were down 15% year-over-year. And in the first week of June, we’re down 12%. The states that are opening up are modestly and only modestly better. But I think that that’s just very, very early.

The — my observation of customer behavior is that people have been very careful. They have retrenched. They are carefully managing their balance sheet. Where people are spending, it’s on their rent payments, their mortgage payments, on essentials around food and so on. So I think I’ve seen the consumer just be very prudent in their actions.

In terms of as we think about the different asset classes, demand for borrowing in the credit card space is very low, very weak right now, which is exactly what you’d expect because it sits in parallel with consumer spending on credit cards. So people have pulled back, and credit card is very low demand.

Auto, we started to see really from the last week of May and the first week of June a real improvement. Now whether 2 week’s a trend, who knows? But obviously, sales have been very weak for 8 or 10 weeks. People weren’t going out to car dealerships to — whether they we’re even open — to buy cars. And in the last couple of weeks, we’ve seen sales on a year-over-year basis up about 15%. So I think I would mark that down as an encouraging early sign.

And it’s true on the — on mortgage originations. In terms of purchase, which are obviously heavily suppressed over the course of the last 8 to 10 weeks, starting to look like it’s coming back. Refi, of course, with rates at this level has been extremely strong.

But that’s kind of how I would look at the asset classes. And now with New York, New Jersey, Connecticut, the Tri-State area, really beginning to pick up — or to open up, it will be interesting over the next 30 days to see what type of momentum we begin to drive there. But I think there are definitely early signs of optimism.

 

Bank of America Corp – Morgan Stanley Virtual US Financials Conference (6/9)

Question – Betsy Lynn Graseck: Got it. Okay. Yes. And that’s an important point you made earlier that this survey of clients is — a client, however you touch it, be it either the payments or loans, they’re not all loan clients. So that’s a good reminder there.

Maybe we could shift to the consumer and consumer behavior and what you’re seeing there. It’s been another 2 weeks plus since we’ve heard from BofA. And so how are you seeing forbearance request trending? And then how are you seeing spending going in the opened versus unopened market? A little color there would be helpful.

Answer – Dean C. Athanasia: Yes. I look at it — if I just — if I could comment on credit and debit spend and just keep it simple. But we entered the year in January and February, things were looking pretty good. You had 6% to 8% growth year-over-year. Then things started to happen in March, obviously, in the second half of March, and that year-over-year spend went down by 6%, so negative 6% year-over-year. April was definitely the worst. Combined debit and credit spend was down by 25%. And then we started to see things rebound in May. May was only down by 12% year-over-year, so cut it down half. And we’re early here in the month of June. So the first week or so, I think we’re maybe down like 5% or 6% year-over-year, measuring that credit and debit spend.

So you can start to see things — that gives you sort of a general sense of how things started and then where they came to with April, definitely the worst. Obviously, all the financial stimulus out there is helping us — or helping the clients, I should say, and that spend is out there and savings is out there. So consumers and small businesses continue to use that to their advantage.

In terms of just pure deferrals, March, definitely one of the — March and April, April, definitely the high point. I would say, overall, May, probably about only 20% of what it was in April. And June is shaping up to be maybe 10% to 15% of May. So if you think of the deferrals are down, people generally did not know what their outlook was in April, so they came to us and asked for a lot of assistance. May, that was down by 80%. And then it’s early yet for June. But again, that looks like it will be sort of 10% of even May. So that’s how far deferrals have gone down and come down.

Now all that’s helped out by — as states reopen, and we’re starting to see higher spend. In some of the states, particularly New York and California, are big — have big impacts on spend. Other businesses coming online, more spending on restaurants and gas, up 35% and 22%, respectively, year-over-year as of the end of May. So things are starting to happen from a spend. We’re a long way from where we were. But as things come back state by state and then the individual spend categories as people move away from just essentials to spending more on food, services, clothing and other retail aspects, you’ll start to see that pick up more and more.

 

Mastercard Inc – William Blair Growth Stock Conference (6/9)

And then the last but not the least is cross-border. And you can see in cross-border, it’s pretty static between the May 7 metric and the May 28 metric. And candidly, that’s largely impacted by travel. And until travel starts to really come back, right, that’s going to be one which we have to closely watch on that. When I say travel, I don’t mean domestic travel. We’re starting to see domestic travel come back, but in the nature of cross-border travel there.

Now on cross-border, important to realize that we’ve given you this breakdown which is how we’re seeing card-present growth take place, how we’re seeing card-not-present growth take place and then card-not-present ex travel. Card-not-present ex online travel continues to show solid growth. You can see that in the metrics we’ve put out. And we’re seeing a modest improvement in card-present — sorry, in the online card-not-present component of cross-border. And that’s being driven by, again, people starting to make a little bit more in the nature of bookings coming through in the nature of online travel, but very modest amounts of growth. At the top of the house, the numbers are fairly even between May 7 and May 28, so I wouldn’t make too much of what we’re seeing there at this point in time.

One more point of note that I’ll flag, Bob, is from a foreign exchange standpoint, we had at the time of the first quarter earnings call shared with you that we expect to see a 1 ppt headwind on our revenues in Q2 and a 1 ppt tailwind on our operating expenses on account of foreign exchange. Given where we’ve seen foreign exchange play out so far and — as our current estimate that, that will be a 2 ppt headwind on net revenues and a 2 ppt tailwind on operating expenses. So I thought I’d share that as well.

 

American Express – Moffettnathanson Payments, Processors, and IT Services Summit (6/3)

Answer – Lisa Ann Dejong Ellis: All right. Let’s talk about spending volumes. Many of your peer networks have been providing pretty real-time updates on what’s going on. I think that’s been enormously valuable not only to the investor community, of course, but also to governments, too, retailers, too, just people trying to manage their businesses through this and understand what is going on. Just what are the latest trends that Amex that you’ve disclosed as a company?

Answer – Jeffrey C. Campbell: So the first comment I’d make, maybe overarching maybe you said is like you, we hoover up every single bit of data that any of our competitors, any of the many different companies gathering data are publishing these days. And the observation I would make actually is that we’re all seeing pretty similar trends if you adjust for different mixes of industry, different mixes of customer segments and different mixes of product, right? So debit is down less than credit across the industry because it is more about essential spending.

So if you think about Amex, we are fairly unique in the fact that we went into this. If you look at last year’s numbers, with about 29% of the spending volume over our network being travel and entertainment-oriented, much higher than anybody else’s, we also had a more premium-focused Card Member base, which is going to do a higher percentage of discretionary spend.

So if you think about those mix differences and you dive into our numbers, they’re showing really the same trends you see elsewhere. So on April 24, we showed, to your point, very real-time data. And we showed that at that time, overall volumes we’re down about 45%. Today, they’re down probably in the mid-30%. So you’re seeing about 10 points of improvement. If you break that down, T&E was down about 95% in mid-April. Today, it’s probably down around 90%. And if you were to break T&E down into its components, again, I think you can see that the results are pretty intuitive, which is cruise line and airlines are down still more than 90%. Hotels look a little better as do restaurants — or excuse me, restaurants look a little bit better. And then hotels are right about at that 90% average.

If you look at non-T&E spending, it was down 20% to 25% in mid-April. Today, it’s down probably in the low teens. And if you break that into online and off-line, online spending is actually growing in the nice — as long as you take the T&E piece out because, of course, a lot of T&E is done online.

 

PayPal Holdings Inc – RBC Financial Technology Conference (6/2)

Question – Jason Alan Kupferberg: Well, terrific. Let’s jump right in. I wanted to get just some feedback from you on what kind of spending themes that you’re seeing emerge as some countries, states have obviously been moving along with the reopening process. Has there been any significant reversal in the e-commerce behavior so far as people are actually going out and about more because it seems like that’s kind of one of the biggest unknowns or the main point in your business?

Answer – John D. Rainey: Sure, Jason. So I think that is the, perhaps, multimillion-dollar question for all of us is how much of what we’re seeing are sustainable trends. Clearly, we benefited from the growth in e-commerce that we began to see towards the tail end of March and very clearly in our results in April and as we move through the second quarter. And we have been closely watching this by both vertical as well as region of the world to see or assess the sustainability of these trends. And a couple of the markets that we had a keen eye on are some of the markets that relaxed their shelter-in-place measures earlier than others, so examples would be Austria or Germany. And at the sort of — if we look at like April results, the growth rates in those countries were 2 to 3x what they were going into the period right before coronavirus. And we’re still seeing, even in these countries and as we look at states across the country, we’re still seeing elevated levels, much more elevated levels of e-commerce activity. And so it’s — whether it remains at this level, I think that sort of remains to be seen. But I think, certainly, we recognize that some of these shifts are likely to be permanent. As people are experiencing things like purchasing groceries online for the first time, and they realize that that’s not a bad experience at all. Or they’re venturing into things like buy online, pick up in store, and those are things that are just simply more convenient for customers. And so we do expect to see higher levels of growth than perhaps what we saw going into this. And I think, in some ways, this may have accelerated some of the trends that we were seeing in e-commerce by, quite candidly, maybe a number of years.

After months of lockdown orders, all 50 states and many countries have begun the reopening process. Alongside the lifted travel restrictions, local governments are issuing guidelines for businesses to begin opening their offices and stores to employees and customers. What trends are companies seeing as global economies begin to reopen? We’ve compiled commentary highlights from the past week of conferences below.

 

Continue reading “Reopening Responses Reflect Cautious Optimism”

As countries slowly start to reopen and experts speculate about global economic recovery, companies are preparing for a second wave of COVID-19 cases.

Meanwhile, on Thursday, executives from the world’s leading companies attended global healthcare conferences while the stock market tumbled due to public fears of a resurgence.

What may feel like whiplash is mostly a case of uncertainty–executives, attempting to prepare for the remainder of 2020, lack a consensus from public health officials, and feel trapped making predictions or providing guidance to investors. Despite all of this, one thing is clear: even if a second wave of COVID cases is imminent, executives do NOT anticipate another economic shutdown.

AlphaSense can track emerging trends in real-time across the entire market, by industry, or watchlist. Keep track of “second wave” mentions by starting your free trial of AlphaSense or logging into your account.

 

Here are the highlights:

• Executives across sectors remain unsure if a second wave of the novel coronavirus will further impact their bottom line in the latter half of 2020.
• Companies are tracking the likelihood of a second wave by seasonality, stages of reopening by countries, and global economic recovery.
• Telekom and SAP, in conjunction with the German government, are building a COVID-warning app that will be rolled out as soon as next week.
• Executives from Morgan Stanley noted that the recent rebound in jobs numbers and the reopening of the economy are all positives and that there’s no evidence that a second wave of COVID is coming.
• Becton Dickinson & Co noted that the fall is when a potential second wave could be of greatest risk (the fall is also peak flu season.)
• Medtronic executives stated that, if there is a second wave (which they do not predict) that “everybody, the hospitals, physicians, industry, patients are better equipped to deal with it.”

 

IHS Markit (Earnings Call Transcript – 6/23)

My personal view as we plan is that there will be some second and third waves like we’ve just seen in Beijing. But I believe communities, governments, hospitals, a whole bunch of therapeutics and other things are starting to emerge, and the management of the waves will be more contained and the return to business and resumption to business will be faster.

So I do think the 5% floor is a solid floor and one that provides our shareholders with a peak to how we think in terms of a second wave. But really, our confidence is in the 7% to 9% and actually performing the businesses that we run, that we know how to run, and returning to a more normalized approach to running our business.

Kroger (Earnings Call Transcript – 6/18)

Question – Kenneth B. Goldman: I’ll just ask 1 because I know we’re late. You talked about some of the trends in states that reopened first. Maybe too early, but what are you seeing in states where there are headlines about a second wave or cases increasing? Have you seen any upticks there? Or again, is it just too early to say for sure?

Answer – William Rodney McMullen: I think it’s too early to tell for sure, and those were states where people were more comfortable going out, anyway, even during lockdowns. So it’s really early to — but we’re really not seeing massive shift changes.

Centene Corp (Analyst Transcript – 6/12)

We’ve already seen significant growth in the use of telehealth to make up the difference for some provider types. And I also — you’re starting to see now not only those organizations that were hit by this expand office hours and do other things to make up for that lost utilization. I think the wildcard in this is what happens if there is a second wave in the fall, as Mark described, and what does that do to utilization.

 

Align Technology  (Goldman Sachs Global Healthcare Conference (Virtual) – 6/11)

Question – Nathan Allen Rich: No, makes a lot of sense. Maybe the last one on this topic of COVID. I know we spent a lot of time on it. I did want to get just some big picture questions. How are you guys thinking about the potential for a second wave? And how might that look similar or different to kind of the initial outbreak of what we’ve just been through.

Answer – John F. Morici: Look, Nate, it’s tough to tell and how to forecast this. And I think that’s why many companies — most companies have suspended 2020 guidance because it’s difficult to know, as the crisis has happened. And then as the recovery happens, it’s difficult to know how that recovery is going to play out. I would say this. I think we, as a country and maybe the globe is a little bit more understanding about the virus than we were 3 months ago in terms of how it’s spread, the different dynamics about do you need to shut down everything? Or maybe you can shut down certain parts of the economy to prevent the spread, protect — you’re vulnerable in a way to make sure that they are not impacted, whereas other places can with protection and with social distancing, they can operate more on a more normal basis.

So I think we’re smarter about what’s happened and maybe what we go forward with. I think what you’ll find is certain regions will — you might have an impact where there’s an outbreak or some spread that will be impacted. But I don’t think you’re going to get the countrywide impact that we saw maybe in the past. And I think that it helps with understanding, it helps with testing and some of the other variables that we were lacking in the past. But again, we’re going to work with our doctors, with our customers to find ways to help them through this. And really, the more that we can provide them with tools to be able to help them navigate in this new world. We think that’s a real positive for the industry.

 

Keuring Dr Pepper  (Deutsche Bank dbAccess Global Consumer Conference – 6/11)

We think the trends that I described that would describe March, April and May are moderating. People are coming back to the restaurant. People will come back to the office. So there’s that kind of real high-level thing that we could all guess that. But what happens if there’s a second wave? So that’s why we don’t get too locked in on any of these and think that this was a storm that blew through and it’s behind us. Now we’re recovering. We’re very wary of what else can happen in the future.

 

Zoetis Inc (William Blair Growth Stock Conference – 6/11)

Answer – Glenn C. David: Right. So obviously, when we gave guidance back in May, there were a number of unknowns at that point in time. And we highlighted that. We talked about the fact that we increased the range of our guidance. Obviously, our revenue range is negative 2% to positive 3% operational growth. And we said there were a number of factors that would drive that range. A, the speed of the recovery in terms of how quickly that visits would start to return to normal levels. Also how the livestock market adapted to some of the new scenarios that we were seeing: a, big shift from the restaurant and food service sector to the grocery sector and also some of the challenges that we’re seeing with plant closures in the U.S.

We also talked about some longer-term factors as well in terms of the second half of the year in terms of the impact of a recession as well as the uncertainty around the second wave of the disease. 

 

Humana Inc (Goldman Sachs Global Healthcare Conference – 6/11)

Answer – Brian Andrew Kane: Well, it’s a fair question and it’s something that we think a lot about because you’re right. If utilization doesn’t bounce back as we are planning effectively for it to get back closer to normal by certainly later this summer, where we could even see in certain circumstances running a bit above normal utilization and then sort of settling back down to more normal utilization. If that doesn’t happen or there’s a second wave, for example, which we truly hope that isn’t the case, but were that to happen, that could impact our utilization assumptions. And to answer your question, I would say, within a reasonable amount, I think we’d be able to manage it. Obviously, if there’s significant depression of utilization, then that would be more challenging. But we have — we’re clearly ready to release funds to the extent that more dollars are available within a reasonable range, is the way I would describe it.

 

Dollarama Inc (Management Discussion and Analysis – 6/11)

It remains impossible to reliably estimate the duration, severity and extent of public health and economic impacts of the COVID-19 pandemic on the operations and financial results of the Corporation, both in the short term and in the long term. A second wave of COVID-19 infections could force governments to reverse reopening plans and impose stricter restrictions.

 

Hologic Inc (William Blair Growth Stock Conference – 6/11)

Just to go back on the capacity side, though, one of the things that I’m trying to understand better is, as the country does open up a bit, and it clearly is doing so for how long and if there’ll be a second wave, I don’t know. But clearly, there’s going to be an increase back in some of your core diagnostic testing and how does that compete for capacity in your manufacturing with COVID testing? How do you balance that?

Answer – Stephen P. MacMillan: Sure. In real simple terms, we’ve built our business certainly on our women’s health assays. We would never sacrifice the ability to continue to offer that. So the reasons we’ve been making the investments is exactly that. As our core business come back, we need more capacity to be able to really offer the [product], in very short term, call it, May, as we were launching the TMA assay, our core business was much softer. So it gave us the capacity.

 

Fresenius SE & Co (Goldman Sachs Global Healthcare Conference – 6/11)

Question – Veronika Dubajova: Okay. And a question that someone’s just e-mailed to me. Just how are you thinking about preparation for a second wave? Obviously, this remains a concern and I think for hospitals in particular, what has the Helios business done to prepare for this? And kind of is this — if there is a second wave, do you think it’d be a more significant or less significant headwind to the business than the first?

Answer – Stephan Sturm: Personally, I have my doubts whether we’re going to see a second wave just because the population as a whole as well as the administration is better — even better prepared than first time around. I think in Germany as well as in Spain with a largely decentralized decision-making, we have done the right preparations for that. We will continue to see local areas of infection. But I would also expect that those can be fairly rapidly contained. I literally come out of a video conference with Ms. Merkel and various ministers of where Telekom and SAP have informed us about the COVID-warning app that’s going to be rolled out as from next week. They have solicited the support of all the very large German employers. And I think that is also going to be an effective tool to contain infections. As far as Helios is concerned, number one, we entered the first infection wave, which wasn’t really a wave in Germany, with pretty good inventory levels as far as PPE is concerned. We have replenished those, sometimes even done a bit more…

Answer – Stephan Sturm: I will spare you numbers, but we are not there yet. We’re still in recovery mode even though speed, magnitude of the recovery has been at least in line with our earlier expectations. Whether it’s already in Q3 or only later in the year when we see a recovery to previously normal levels remains to be seen. But my expectation would be that over the course of the second half, we’re going to go back — get back to normal, obviously, with the caveat of the absence of the second wave.

 

Raymond James Financial (Morgan Stanley Virtual US Financials Conference – 6/10)

Question – Manan Gosalia: So I do want to get into what you’re doing on the technology side, but maybe before that, what longer-term changes do you see coming out of this environment?

Answer – Paul Christopher Reilly: Yes. I think it’s kind of early to tell. I think that we’ve learned that if 95% of people can work from home and productivity doesn’t fall. Certainly, we don’t need 99% of the people in the office. So I think the office and the meetings from a cultural standpoint, a bonding standpoint and really deep strategic discussions are certainly helpful for any organization. But we had — there is no reason why people can’t work more often from home or that some number, I don’t know what it will be, 30% plus of the sales force will be working from home and other people can work mobilely as they travel, so I think that we will see longer term more people working from. And ironically, just a week before we kind of really shut the offices. We had hired someone who had the mobility efforts of PwC, and I told him he had 5 years to get us to what we are working, 30% of our people working from home and then everyone having the mobile capability. So after he’s here a month, I said, I really meant 5 weeks, not 5 months because we virtually were there. So I think that’s going to be a change. We’ve learned that we can have effective meetings like this conference without flying. We’ve learned that even client engagement, the clients have learned these technologies where they were afraid of them before. We have 80-year old clients on Zoom and doing e-signature, which didn’t happen before the pandemic very often. So I think it is going to change how we work, but we’re going to have to learn. And I think part of that depends on the course of the virus as we get into a heavy second wave. I think it’s going to be — people are going to be more leery about getting into the offices or crowded spaces. If it’s something we get a vaccine, and it kind of goes away, we’ll see what that new normal is. And I think — I don’t think it’s going to be 80% working from home, but I don’t think it’s going to be 80% or 90% wanting to come to the office every day.

 

Johnson & Johnson (Goldman Sachs Global Healthcare Conference – 6/10)

Answer – Terence C. Flynn: Great. Well, that’s great to hear. I guess the last one’s just how are you guys thinking about the potential for a second wave of infections in the fall? I know that’s the other thing we’re all monitoring here as we watch the reopen. So how are you guys thinking about that? And any perspective you can share?

Answer – Jennifer L. Taubert: Yes. No one knows for sure whether the virus is going to return or not. But our thinking is that if it does return, it’s not going to have the same level of global impact that’s been experienced over the last few months. This assumption is based on opinions that have been shared with us by numerous experts that we’ve spoken to as well as in a number of different forums. And I think they believe, as we do as well, that if the virus does return later in the year, the world should be much better prepared, right? Testing should be more readily available. There will be adequate supply of PPE and other necessary medical equipment. Things — isolation and other preventative measures should be able to be implemented with more precision. And there may also be good therapeutic options that are available for treatment. And so at a minimum, we should be in a much better place if it returns than where we were when the virus first started beginning of the year. So I think more to come on that later in the year. But if it does return, we don’t think it will have the same impact that it did this time around.

 

S&P Global Inc (William Blair Growth Stock Conference – 6/10)

On terms of making sure that the businesses continue to operate and deliver financial results during the year, we immediately went into a mode of scenario-based planning. Because it was so hard to talk about how long this situation would last, what kind of recovery patterns we would see, we have all seen all the latter shapes kind of forms, even if there would be a second wave, and it would come back at a certain point in time. And we wanted to make sure that we think about all those different scenarios and take appropriate management actions to deal with those scenarios.

 

CVS Health Corp (Goldman Sachs Global Healthcare Conference – 6/10)

it’s difficult to predict the last half of the year. Obviously, we’re watching on these utilization numbers. They’re — depending on the markets, they’re varying. And I think what you have to — what we’re considering as we’re thinking about the latter half of the year is what do we think about elective procedures, how quickly will people go back into the offices to get procedures. And quite frankly, we’re encouraging them to get those services so that we don’t see adverse effects on their health for not getting those services.

And then, obviously, we’re considering the possibility of a second wave and what that could potentially do. So it’s really hard to pinpoint what the trend will be in the second half because there are so many variables. And as you would imagine, we’re running a number of scenarios as we’re thinking about the last half of the year.

 

Edward Lifesciences Corp (Goldman Sachs Global Healthcare Conference – 6/10)

Answer – Scott B. Ullem: Yes. It’s really about the top line recovery. So our expense numbers have been impacted, I guess, positively just naturally as a result of COVID because there’s less travel. There are fewer society meetings. There are just some natural expense savings that have come from this interruption.

Those will recover as the overall environment recovers. But when revenues pick up and we get back onto that top line growth curve that we originally projected for 2020, we think we’re going to be able to grow back into our margin profile pretty quickly.

Longer term, we still believe that mix and efficiencies are going to benefit our gross margin. And we anticipate that, that’s going to trickle down and have an incremental minor impact as our operating margins expand over time. So headwinds, obviously, if there’s a resurgence in COVID cases, if there’s a second wave, that will be a meaningful headwind to margins. Absent that, we are on a — we’ll be on a glide path to a return to our margin profile that’s more like what we originally guided to for 2020.

 

Zimmer Biomet Holdings (Goldman Sachs Global Healthcare Conference – 6/9)

Question – Amit Hazan: So Bryan, one of the things we’ve been asking folks today is just to consider — obviously, everybody is considering a lot of scenarios that could unfold just given the uncertainties. And just to consider the downside case, whatever it is that you’re looking at yourself or whether that’s high rates of infections in the fall and second wave or what have you. And maybe just talk through your preparation for that in that scenario, what incremental actions you would need to take as a management team to work through that.

Answer – Bryan C. Hanson: I actually think — I kind of think about that idea of a second wave in a couple of different ways. But before I even get to that, just the preparation and the organizational structure that we have right now in dealing with this wave absolutely sets us up to be able to deal with anything that would be coming in the future. We got right out ahead of this and made sure that we have the right work streams in place to manage this extremely effectively across a number of different factors. And that, obviously, infrastructure is still in place. And so we feel more confident now than we ever could have to be able to deal with any second wave that might come.

In the way we’re thinking about a second wave, it’s really 1 or 2 things, right? I mean the first one would be that as social distancing starts to loosen up, you get an immediate recurrence, and we’re keeping an eye on that. Probably our best proxy on that right now is China because they’ve been through the other end of this thing longer than anybody else, and we haven’t seen that. But certainly, we’re looking at it by stage and by country, in those states or countries that are further along in moving towards more of an opening of their economies to see what happens. But so far, so good. We haven’t seen a recurrence in that way.

The other one would be around seasonality. Obviously, a lot of people potentially predicting that there would be, as a result of seasonality, a recurrence at some point in the future. And again, I think just given where we are as an organization and the industry is as a whole, when I talk to hospitals and hospital CEOs where their comfort level with being able to respond to a second wave, pretty much, everybody says that if there is a second wave, the materiality of it is not going to be anything like what we’ve experienced in wave 1. That’s mainly because now you know. Whenever you don’t know something, you’re automatically more conservative because you’re not sure what’s going to happen. Now we’ve got a pretty good sense of what’s going to happen, so you’re going to have more of a less of a conservative approach based on that. We also now have a high level of comfort with PPE, testing capabilities. So a lot of those things that put us in a situation where it was as dramatic as it was in the first wave just aren’t going to be present, from my perspective and certainly our customers perspective, if there is a wave 2.

 

Becton Dickinson & Co (Goldman Sachs Global Healthcare Conference – 6/9)

Today, we’re producing — we’re a little under 1 million tests a month. We’ve ramped that up but are at that steady state now. I mentioned at the start of our discussion that we’re adding capacity, another line. It’s an automated line. I had shared historically that, that line, we expected to go live at the very end of calendar 2020 into potentially early 2021. Our team has been executing really well there, and we expect to have that line fully go live within mid-Q1 now of our fiscal year. So in time for the fall and in time for really the ramp-up of the flu season, which is, in our assumption, is when a potential second wave could be of greatest risk, COVID second wave.

 

Morgan Stanley (Morgan Stanley Virtual US Financials Conference – 6/9)

I’m anxious to see what the numbers show us. I think the recent rebound in jobs numbers and clearly the reopening of the economy, and there’s no evidence there’s a second wave yet of COVID, are all positives. I think the fiscal work and the monetary stimulus from the Fed have been positives. So I’m curious to see where it comes out. But I feel really good about Morgan Stanley’s capital position. But until we see what the models do and how they hit different parts of our business, it’s hard to tell.

 

Varian Medical Systems Inc (Goldman Sachs Global Healthcare Conference – 6/9)

Question – Amit Hazan: Okay. And then let me take — before we get into some of the more recovery type updates, I want to just ask about the fall, and talk through a downside case. I imagine you’re preparing for a whole bunch of scenarios, just given the uncertainty as and maybe talk through your preparation of whether we — if we get a second wave of infections in the fall, what it is that you’ll be — what you’ll be putting in place to kind of defend against that?

Answer – Dow R. Wilson: Yes. I mean, I think, first and foremost, we’ve got a number of activities in place right now. So we still have pretty much all of our engineering and management teams, jobs that can be done from home are being done from home. The manufacturing and service side of our operations are still — are viewed as essential services. And we don’t see that changing in a second wave.

We’re seeing customers be a little more adaptive to doing business over the phone, so doing what we’re doing here. So I don’t — if there is a second wave, I mean, it’s, obviously, going to be a function of how deep? How broad is it? But, a, I think our supply chain is in pretty good shape; b, our service team is in very good shape. This has given us a chance to really kind of make sure that they are where we need them to be. We’ve got sufficient PPE for our service team.

 

PNC Financial Services Group  (Morgan Stanley Virtual US Financials Conference – 6/9)

Answer – Betsy Lynn Graseck: So when I’m thinking about the reserve ratio that you’ve got, we’re looking at, say, your 2019 stress test and your current reserve is about 40% of projected losses there, I mean could this scenario be as tough as what you had been stressing for last year in the stress test that like 100% of those? Is that — or is that like wildly, that’s a crazy statement?

Answer – William S. Demchak: It’s not one that we would run as our baseline, but it’s one that — it’s a different scenario, but the losses aren’t wildly different that we run as kind of a downside case in COVID. I mean so everything we think about — everything we’re talking about right now kind of assumes that, in fact, the economy can reopen without a second wave and a second shutdown, right? That’s what’s in fact in our base case numbers.

So to the extent, you put whatever probability you want on to it, that we end up with kind of second wave and second set of issues here, then it gets worse.

 

Baxter International (Goldman Sachs Global Healthcare Conference – 6/9)

Question – Amit Hazan: Okay. So one of the other things that struck us on the call is you guys always sound extremely thoughtful in how you’re thinking about probabilities for how outcomes might turn out. And so I thought I’d ask you a downside case scenario because it seems like you’ve got at least 6 scenarios, as you guys had mentioned that I know other companies probably do the same.

But maybe just talk through your preparation for a downside case where we get something like a second wave of infections in the fall? And then just what incremental actions you as a management team would plan to take in that scenario?

Answer – James K. Saccaro: Sure. There are really just a few different buckets of preparedness. First, you’re right in saying we have looked at a lot of different scenarios. And frankly, given our approach, most of them are kind of downside scenarios, we’ve done that because, for us, we want to make sure that the operation continues to move forward in the right manner with no disruption under all different scenarios that we can imagine.

So it’s not like we spent a lot of time kind of modeling this whole thing goes away very swiftly, which we certainly hope it would. But as it relates to these downside scenarios, there’s basically 3 areas of focus. One is the — do we have adequate liquidity? Two is, do we have adequate inventory? And three is, have we thought carefully about the cost structure?

As it relates to liquidity, look, we have ample liquidity and the balance sheet is very, very solid. I think — but one of the things that we did in the first quarter was we did a bond issuance of $1.25 billion, just to shore up, really as an insurance policy, against a downside case. And this would be an extreme downside case where it would be necessary to access some of the funding that we raised. But we just felt it was prudent to be prepared for those kinds of scenarios. Now it’s expensive insurance in the sense that the rates were a little bit higher than and what we would have done had we raised money a year ago. But like I said, we thought it was really the smart thing to do. A lot of companies are issuing equity in this time, I think, for very similar reasons. We chose not to do that. Equity felt more expensive than raising some 5- and 10-year debt.

The second piece relates to supply chain. And so for us, there are critical products where, in a wave 2 pandemic or, by the way, in a hurricane season, we will want to ensure that we have adequate supply of in our warehouses and often time — many of those warehouses are in the U.S…

And then third is cost structure. And I think as we think about rolling into the second half of the year, we’ll be very cautious with discretionary spending. We’ll be very cautious with travel and consulting and all of these different categories of spending to ensure that we have enough support and an efficient enough cost structure that supports us as we move forward, recognizing that in some of the scenarios, you obviously can’t fully offset the negative cost impact that will materialize. You want to be thoughtful about being as efficient as you can be.

 

McKesson Corp (Goldman Sachs Global Healthcare Conference – 6/9)

In terms of some of the important factors that we considered in our guidance, and we talked about it on our earnings call, I would just remind you that first of all, we’re not assuming that a second wave of a virus returns at the same peak levels as it originally came at us. 

 

Transunion (William Blair Growth Stock Conference – 6/8)

Question – Andrew Owen Nicholas: Great. That’s helpful. And you answered a few of my follow-ups within that. So I appreciate that. Maybe one more on the current environment. Just — and you alluded to it a little bit in your response earlier, but just given the experience you have managing through the past couple of months, I’m curious how you’re thinking about the potential risk of second wave. Obviously, there are a bunch of different variables to consider. But I’m just wondering if you think the impact to consumer credit could be less severe, the second time through. Just given the experience consumers and businesses have in dealing with a more unique pandemic-driven shelter-in-place type environment? And just kind of how you’re thinking about that risk in the second half of the year?

Answer – Christopher A. Cartwright: Yes. That’s a good question. I mean obviously, I hope we don’t have a second wave of any sort. We had obviously a lot of suffering already. But I do think we’ve had in this first wave, great preparation for how we would deal with subsequent flare-ups in COVID. And as you see from the statistics, COVID continues to march across the U.S. and the rest of the world, although those cities, states, countries, et cetera that went aggressively shelter-in-place policies are — have bent the curve and have reduced infections to more manageable levels. And now I’m hopeful that the combination of populations getting comfortable with working from home and sheltering in place, also wearing masks to mitigate the disease transition. And the increased availability in diagnostics can help prevent or mitigate a likely second wave. If it comes around, I think it’s just more of what we’ve experienced in the latter half of the second quarter, right? I don’t think we’ll have the shock of that initial transition to working from home, working virtually that we experienced. So I think we’re prepared. However, and again, look, I read the same things that you read. I thought it was very encouraging yesterday when the WHO came out and said that they believe now that asymptomatic transition — transmission rather, doesn’t happen very often. It’s actually quite rare. And transmission between children and their adults is also quite rare. Now I just saw this yesterday, obviously, there’s a lot more to read and to understand, but if that’s the case, I think that’s going to people to reengage societally and economically with more confidence, which just further fuels recovery.

 

Medtronic PLC (Goldman Sachs Global Healthcare Conference – 6/9)

Answer – Geoffrey Straub Martha: Well, I mean, first, we learned a lot from the first go around here and so has the health care system. So if there is a “second wave,” like I said earlier, I don’t — I think everybody, the hospitals, physicians, industry, patients are better equipped to deal with it. And I don’t anticipate a shutdown again.

And our approach would be largely the same. I mean besides the lessons learned, which I think will make it more efficient, we want to continue — we have — look, we have a pretty healthy product cadence coming, hitting the market now. And we’ve been working on this for a number of years, and the team is focused on making it count, making it count and driving incremental share for us. And so I want to keep our team focused on that, keep — all the way from operations in terms of making sure that the manufacturing plants are opened up and running smoothly to our distribution centers, through our sales team, that they can focus on the customer.

 

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