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CapEx Cuts in the COVID Era

AlphaSense Staff

With a global decline in demand, companies are being forced to reprioritize spend and focus on their cash position. To increase cash flow, many have turned to reducing their capital expenditures (CapEx). While many of these reductions are being called out as temporary, the work-from-home trend has received a lot of attention as a place to permanently reduce future spending. The concept gained further traction this week with Twitter announcing that their employees can continue remote work permanently. 

We’ve compiled a list of companies that have commented on reducing CapEx in their Q1 earnings call. Take a look below to see how executives are talking about cutting their capital expenses.

Takeaways

  • Oil and Gas, Chemicals and Utilities companies are being hit hard by the COVID crisis are cutting CapEx at high rates 
  • Some companies are cutting dividends and/or suspending share repurchases in addition to CapEx reductions
  • Progressive commented: “As we think about returning [to offices], there could be an advantage for real estate because many of those people will be very efficient and effective working from home, maybe be better for them.”

AlphaSense can track management commentary in real-time across the entire market, by industry, or watchlist. We expect this to be an interesting theme to follow throughout earnings season. Start your free trial of AlphaSense now or login to your account. 

 

Energy Transfer LP (Earnings Call - 5/11)

Based on our outlook for the current market, we are reducing our 2020 growth capital expenditures by at least $400 million to $3.6 billion, and we are evaluating another $300 million to $400 million for potential reduction this year. Although we anticipate growing the business over the next several years, and we are continually evaluating new opportunities given our asset footprint, we view it as unlikely we will add any major organic growth projects to our backlog for 2021. As we think about future capital spend over the next 3 to 4 years, we anticipate an annual run rate of less than $2 billion.

 

Marriott International (Earnings Call - 5/11)

Answer – Kathleen Kelly Oberg: So a couple of things. First, I'll remind everybody once again that a huge proportion of our fees that we charge are revenue based, so there is an automatic decline that has happened as a result of the drop in RevPAR. So that if you think about it, for the mandatory programs and services that we charge, when you also include the deferral and the 50% discount that we gave in April and May, there's actually very little due at the moment from -- on the mandatory programs and services. At the managed hotels in North America, we have also, as I talked about, dropped payroll incredibly as well as all the operating costs of the hotels.

So of course, you do have owners as -- just as we too are thinking about how we are managing our payables. Everybody is trying to manage their cash as best they can. But I will say, our owners and franchisees are paying their bills. We have a really very, very small fraction of our hotels that are having trouble paying at the moment. And then, except for a bit of extended payable terms that you can see, otherwise, it's really all systems go for the moment. And as I said, in April, we actually saw, relative to those numbers I gave, really, a fairly dramatically better situation than the one that I gave you. But we wanted you to have the benefit of our cash planning, so that we are making sure that no matter the situation that we're able to manage through it.

 

EOG Resources (Earnings Call - 5/8)

Question – Arun Jayaram: Yes, that's a clever way to think about it. Just a quick follow-up. You guys cited the $3.4 billion sustaining capital for the 4Q exit rate at $4.20. How fully loaded, Billy, is that $3.4 billion? I know you talked a little bit about the ability to even maybe push that down based on incremental cost savings, but how fully loaded is that CapEx number?

Answer – Lloyd W. Helms: It's in keeping with how we would run our business. So it's -- the way I would think about it is maybe a little more high-graded than it was in the $4.1 billion capital plan that we announced some time ago that people might remember. In that previous maintenance capital plan, it was pretty much designed to keep each division kind of operating flat. This one is truly -- we're going to go to the wells that have the highest return at today's prices. And so it is a little bit more high graded you might think of.

It's still spread across multiple basins, though. So I wouldn't jump to the conclusion as just one area. It's still spread across multiple areas. And it includes the infrastructure and facility costs and ESG spending and those kind of things that we typically would include in a normal budget, just maybe at a little bit lesser scale.

 

Exelon Corp (Earnings Call - 5/8)

At ExGen, the $0.10 per share degradation reflects $0.05 of drag from the very mild Q1 weather and then $0.05 of COVID-19 impacts on load net of our cost and business initiatives. In addition to the O&M savings, we remain focused on cash at ExGen and have lowered CapEx by $125 million in 2020. We expect our earnings to be most impacted in the second quarter and have provided adjusted operating earnings guidance of $0.35 to $0.45 per share.

 

Siemens AG (Earnings Call - 5/8)

Across all functions, we are cutting back in discretionary spending. CapEx projects are reprioritized in a stringent way. And we focus very closely on securing customer payments and ensuring supplier payments to keep supply chains intact. We are also well on track to achieve our targets for lean and effective governance to reduce costs by EUR 300 million in fiscal 2021.

 

Microchip Technology (Earnings Call - 5/7)

We have prepared the company for a downside scenario by putting the employees on a 10% salary cut and adjusting the factories by reduced work hours or rotating time offs. We have also frozen all business travel and cut discretionary expenses.

Regarding CapEx, we finished fiscal year 2020 with a CapEx of $67.6 million, a significant reduction from fiscal year '19 CapEx of $229 million. This is consistent with what we have said before that our CapEx is divided between growth capital, maintenance capital and new products and technology capital. In a fiscal year like 2020, in which our net sales declined, the growth capital, which is the largest portion of CapEx, declines to virtually nothing. And therefore, the total CapEx declined significantly. We expect CapEx for fiscal year '21 to remain low in the range of $50 million to $70 million.

 

Booking Holdings (Earnings Call - 5/7)

Second, we repurchased $1.3 billion of our stock in Q1, almost all of which was purchased under a stock buyback plan we filed last November. We halted buybacks as soon as we recognize the growing impact of the pandemic. Third, we had CapEx of $80 million in the quarter. And finally, the value of our investments decline in parts by the $307 million unrealized loss on equity securities and the $100 million impairment related to a strategic investment that I mentioned earlier.

In addition, we had $106 million decline in investment value that did not impact the P&L but was reflected in the balance sheet. The majority of the remaining $288 million difference between cash and investments at year-end on March 31, is primarily due to the timing of the settlement of sales was from corporate bonds that were classified in prepaid expenses and other assets at the end of March. These sales were settled in April and moved into cash and investments.

In our efforts to stabilize the business from the immediate shock of the crisis, we've taken several steps to show up and bolster our liquidity position. We halted repurchasing our stock, and we will not initiate repurchases until we have better visibility into the shape and timing of a recovery from the COVID-19 pandemic

 

Franco-Nevada Corp (Earnings Call - 5/7)

Question – Cosmos Chiu: For sure and maybe as a follow-up Jason, as we talked about there has been cutbacks in CapEx but I just want to confirm once again, it's got a bit of a lagging effect to us. So even if they cut the oil and gas producers even if they cut CapEx now the impact doesn't come later on right?

Answer – Jason O'Connell: Yeah, that's correct. So the nature of our royalties are that there is a deferral between when drilling happens when wells are completed, when production comes online and then we actually receive our check. And so we expect that drilling levels were reasonably strong in the latter half of 2019 and even into early 2020 So we will continue to receive the benefit of that drilling into Q2 here even into potentially early Q3, so the majority of the impact that we think we will see from the reduction in capital spend will occur in the latter half of this year and then into 2021.

 

Otis-Worldwide (Earnings Call - 5/7)

Now Q2 is going to be a little bit challenging in Europe and China -- Europe and the U.S. China is going to recover, but we will see some pressure in Q2 in Europe and the U.S. And then -- so our cash flow will be a little bit more skewed towards Q3 and Q4 than it typically is, but you would expect that given the overall macroeconomic environment. But we feel good about our guidance. I think we've done -- we've taken good steps to offset and mitigate some of the impact that is coming through from the drop in net income from our previous guide to this guide. I mean if you look at the guide-to-guide on our net income, probably down at the midpoint at AFX, about $150 million. And we've mitigated that through lower Capex. We've reduced our interest cost. There are some tax payments that we try to manage, some of that coming through the CARES Act. But we try to put all that in and yet drive $975 million of cash as kind of the midpoint. So it's -- we feel good about our back-end recovery in cash flow.

 

Anheuser-Busch InBev (Earnings Call - 5/7)

Question – Jean-Olivier Nicolai: Brito, Fernando, just one question and one follow-up, please. Could you give us a few examples, in the U.S. market specifically, on the measures you're taking to protect your margin? And just a quick follow-up on the capital structure. I mean ABI clearly has no liquidity issues, as we've seen from your prioritization, a new refinancing and then the announcement we see this morning. But I was just wondering how you're planning to optimize your capital structure in the medium term? You reduced the dividend already. Can we expect a CapEx reduction? Can we expect more noncore disposals? Or should we just assume that the bulk of that net debt-to-EBITDA reduction will come through EBITDA growth? Obviously, for the medium term, not asking for a guidance for this year or next year.

Answer – Carlos Alves de Brito: Well, in terms of the U.S. in terms of measures to protect our margins, we're doing everything we -- I just mentioned in Brazil. So we're looking at discretionary spend. We're taking a hard look at sales and marketing, at CapEx -- the OpEx and CapEx, and trying to put the money in channels and products that consumers are demanding more. So trying to put more money behind e-commerce initiatives, direct-to-consumer initiatives. More money for ensuring the off-trade, more money behind bigger packs; trying to promote less because today, there's no need for that; trying to phase out some product new introductions, innovations because at this point, it doesn't make sense to do introductions; trying also to curb some media spend and put more online; so trying to be more in tune with consumers and trends, so we allocate resources in a more effective way. So it's a big time something we're doing.

In terms of capital structure. Again, the capital allocation priorities are clear. So the first priority will continue to be to invest money behind our business. U.S. business is doing very well. You saw the first quarter, Olivier. Second is to deleverage. We have a target of getting to 2x net debt-to-EBITDA. This remains our commitment. And we'll continue to prioritize debt repayment in order to meet this objective. And third is M&A. And fourth, giving money back to shareholders.

 

Becton Dickinson and Co (Earnings Call - 5/7)

Question – Robert Justin Marcus: I'll ask both of them all in one. I noticed you took down your CapEx for the year by about $200 million. Hoping you could just touch on your thoughts around pipeline delays that are potential coming out of this, what should and shouldn't be affected? And then also, how are you thinking about your ability down the road? Is this reduction in CapEx temporary? Could we see something more permanent come out of this? Really, just how you're thinking about capital, investing and your capital allocation in general, plus the pipeline.

Answer – Christopher R. Reidy: Yes. I'll start with that, Robbie. Thanks for the question. And as you might imagine, the first thing that we wanted to make sure of is that we were able to mitigate the cash impact from the headwinds from COVID. And we've made great progress on that in a few short weeks. And we're able to mitigate a substantial part of the -- what we see as the capital impact. And we think that was the prudent thing to do. Now one of those things that we did to get there, in addition to some of the P&L items that we talked about that clearly impact P&L and cash, but from a cash perspective, one of the items that we did take down was the CapEx. And we're prioritizing mission-critical capital spending. And we're cutting and basically delaying some of the investments that we're making that are more discretionary. And we're being very careful on that because we want to make sure that we're not cutting anything that would inhibit any capacity going forward. So we're being very targeted on that. And it clearly is not a permanent adjustment in CapEx. We would expect that when we come out of this pandemic, that we would -- some of those things that we're cutting, we will -- are just deferring and we'll have to spend that. And so you can expect us to go back to the normal $900 million to $1 billion kind of thing. And that is particularly true as we think about investing in areas that are necessary for COVID. We continue to invest in those areas and ramp and make sure that we have capacity. As Tom has articulated on a number of fronts, we're ramping capacity. So think of that as a temporary reduction.

 

Waste Connections (Earnings Call - 5/7)

In terms of operating costs, on the commercial side, the extent to which we can reroute or otherwise adjust our operations to reflect lower activity levels, varies by market and depends on the pace and severity of reductions as well as the expected timing and shape of any recovery. That said, we are already realizing savings in many variable costs, including third-party brokerage and disposal, labor and fuel, along with reductions in discretionary and nonessential expenses.

With regard to capital expenditures, we've proactively cut approximately $110 million for the year or about 20% of CapEx in light of the slowdown in activity. However, we'll remain opportunistic during this period if presented attractive offers to purchase additional fleet, equipment or longer-term landfill expansion acreage.

 

Raytheon Technologies (Earnings Call - 5/7)

And as I mentioned earlier, we're taking immediate actions to reduce costs by $2 billion and preserve liquidity with $4 billion cash actions. We're reducing capital expenditures in the investments, we've deferred merit increases across the commercial businesses and we're cutting discretionary spending, just to name a few. While many of these measures have been difficult, it is the right thing to do for the business.

 

Suncor Energy (Earnings Call - 5/6)

We have decided to target a further reduction in our 2020 capital expenditure program, revising the range from $3.6 billion to $4 billion. This represents an additional capital reduction of $400 million at midpoint compared to our March 23 guidance. Our Board of Directors remains committed to the overall business strategy of leveraging our long-life, low-decline asset base while providing energy to our customers and returning value to shareholders.

However, after having taken into account the significant capital and operating cost reductions announced to date, the Board believes that a reduction of the current level of dividends is required to drive down the breakeven of the company to a WTI price of USD 35 a barrel. As a result, the Board has decided to reduce the dividend by 55% to a quarterly cash dividend of $0.21 per common share down from $0.465 per common share. This will take effect for the dividend payable on June 25, 2020. The total actions taken with today's announcement and the March update targets a reduction in our capital spend by $1.9 billion or 33%, and our operating cost of $1 billion or 10%. It also decreases our use of cash by $4.5 billion on an annualized basis versus our original 2020 plan. The implementation of these decisions is expected to reduce our breakeven costs from USD 45 a barrel to USD 35 a barrel, covering all planned operating and administrative costs, sustaining capital and dividends. These actions not only support our strong balance sheet, financial health and high investment-grade ratings but adds to the resilience of the company to maintain its focus on long-term value creation.

 

Waste Management (Earnings Call - 5/6)

Capital spending in the first quarter was $459 million, which is down modestly when compared to the same quarter in 2019. While we continue to prioritize investments in the long-term growth of our business, we are now flexing our capital spending to align with current volumes and expect to see a significant decline in capital spending beginning in the second quarter of 2020.

For the full year, we are targeting capital spending reductions of about 10% from planned levels. Landfill capital makes up about 1/3 of our overall capital spending, and we expect most of the reductions in this category as we adjust cell construction schedules with declines in volumes. We also see opportunities to flex spending for containers and heavy equipment.

 

American Electric Power (Earnings Call - 5/6)

Answer – Julien Patrick Dumoulin-Smith: I hope you all are well. Perhaps just to pick up where the last question left off to start here. On guidance in the 2020 just lower, how do you think about the reduction in CapEx? I just want to reconcile this. I mean it seems as if you're not really changing FFO-to-debt expectation as you are bringing down CapEx altogether. But why do that relative to no change in earnings? So just can you walk through the thought process there? And then also, it seems that it doesn't necessarily have too much of an earnings impact given the corporate nature of some of that CapEx, but I just want to make sure we're thinking about that correctly as well.

Answer – Brian X. Tierney: Sure, Julien. Thanks for the question. So we are anticipating there to be some reduction in cash flow this year associated with 2 things: one, lower customer demand; and then two, we have eliminated disconnects currently. And so we think that customers will pay us slower than what they have in the past. We're not seeing the impact of that in a significant way yet. It's too early. But in anticipation of lower cash flows to maintain those FFO-to-debt metrics, we felt it was imprudent to at least engage the motor on our ability to scale back CapEx.

In regards to the no impact on future earnings, we try to do it in places that have either lower regulatory lag or the increase in earnings isn't as great. So Nick mentioned that some of that reduction is in the competitive renewable space. And some of that reduction is also at corporate capital, things like IT and things like that, that are much slower to flow into customer rates during rate cases. Things that we were careful not to cut were things like transmission where we're spending on customer resilience and reliability. And we have those formula-based rates to update and get that CapEx into rates on a fairly efficient basis.

So we were really thoughtful about how we cut that small -- or shifted that small amount of CapEx and made sure that it wasn't impacting earnings.

 

Progressive Corp (Earnings Call - 5/6)

Answer – Philip Michael Stefano: Yes. I wonder if you could talk a little more about the operating expenses. Maybe we can put aside the advertising spend, because it feels like that's been pretty well-covered. But are there discretionary expenses in the business or levers that you can pull down at a time like this to maybe help support the expense ratio improvements that may come back next year? Or at least, to offset some of the increases in allowance for doubtful expenses or other things like that to maybe neutralize the upside expense pressures you might be seeing?

Answer – Susan Patricia Griffith: I think we always have different levers. And I think you've seen in the past when things that have happened where we've gotten closer to our [96.] We've done that. We're really not in that position now because of the margins. And like we talked about, we have the expense for the 0.8 points for the doubtful accounts, and we'll watch and see how that continues to impact us through April. We're always looking at expenses, how to do more with less, et cetera. This is an odd time. But I think once we get through this and things are back to normal and claims frequency is back to normal, we will continue with our expense management.

A lot of this, we've learned about how many people work from home. And so initially, before the COVID happened, we probably had maybe about 10,000 of our employees of our 43,000 employees working from home. Now we have 95%. As we think about returning, there could be an advantage for real estate because many of those people will be very efficient and effective working from home, maybe be better for them.

 

CVS Health Corp (Earnings Call - 5/6)

Once we return to normalcy, we expect to repay the incremental debt. We will also continue to prudently manage our operating expenses and will reduce our planned capital expenditures by $200 million this year. Our long-term leverage target remains unchanged, and we continue to prioritize paying down our debt and maintaining our dividend with no share repurchases planned until we meet our leverage target.

 

Republic Services (Earnings Call - 5/5)

Finally, turning to expense and CapEx. As we continue to operate during this uncertain time, we are adjusting our cost structure to align with real-time changes in volume. Importantly, we estimate approximately 60% of our total cost structure, including cost of operations, SG&A and depreciation and amortization, is variable. We are closely managing these variable costs.

For example, we put labor management strategies in place to redistribute the workload. As a result, we've reduced total overtime hours by approximately 37%. We are also reducing discretionary spending, such as travel and are scaling back on capital expenditures. For example, approximately 10% of our capital budget or a little over $100 million is for growth capital, which we will no longer need to spend this year.

Additionally, as volumes decreased, the replacement cycle of our assets naturally extends. Therefore, we are intelligently scaling back on replacement capital to align with changes in demand, including the construction of landfill air space and the purchase of replacement trucks, containers and equipment. Overall, we have been quickly adapting our operations based on changes in customer demand.

 

The Walt Disney Company (Earnings Call - 5/5)

We also identified opportunities to reduce our capital spending, and we now expect total CapEx for fiscal 2020 to be about $900 million lower than our prior guidance or $400 million below prior year, driven primarily by paused construction and refurbishment work due to the temporary closing of our parks. While it is still too early to consider more specific implications for capital spending in fiscal 2021, we remain confident in our investment decisions and the resiliency of our businesses.

 

Total SA (Earnings Call - 5/5)

Answer – Christyan Fawzi Malek: So a couple of questions. First, regards to the capital frame and the logic of sustained dividend at these levels in the context of CFFO. And the second question is on the impact of the CapEx cuts on the future oil production. So regarding the level of the dividend, now your dividend as a percentage of CFFO is on the highest. It appears that the European oil is just under 40%. Regardless of the impact from this current crisis, do you think this is a relatively high level and it limits your ability to spend more on energy transition and your oil growth? Because some of your peers have argued that cutting the dividend is a key enabler.

The second question sort of links into that, which is to understand how much oil production has been deferred as a result of the CapEx cut this year? And if you were to raise CapEx to simply round if oil moves higher, would you allocate it into New Energies or oil? Or can you give us a sense of how you sort of reallocate that marginal growth in CapEx? I'm just trying to understand on whether the updated energy transition policy comes at the expense of lower market share in oil over the medium term?

Answer – Patrick Pouyanné: I think -- by the way, today, again, we have to -- as I said in my presentation, we are very comfortable. First -- we know that in oil and gas company, we'll have some volatility and we have to accept a certain period of time to use, to leverage this balance sheet in order to maintain a certain level of return to the shareholders. At the same time, again, as I said, if the oil is at $30 for longer, for very long, there is a certain limit to what we can do. But at $40 per barrel, the cash flow generation, if in a stable activity, I would say, is around $19 billion per year. $19 billion, $7 billion of dividend, I have $12 billion for investing. I think we are fine with that. We have -- that means that, yes, we have to make some choices. And from this perspective, on the second question, I think with $1.5 billion to $2 billion as an average, we are fine to grow it steadily.

This morning, you noticed probably in the -- will come back on it in the climate statement, but we said that we reached 20% of our capital allocation by 2030 or sooner, which means we have time to grow it. We think that there is also a certain level to build. Is it -- so I don't think that this -- and I understand perfectly the question, but we -- but this dividend at this level is impairing the execution of our strategy. The CapEx cuts impact on this year production are really minimum. I mean when you have a CapEx program of infill wells that you cater the second quarter and third quarter, the production could produce is, I think, some matter of 10,000. By the way, this would have been done in countries like Angola where you have some quotas. So I think our decision was just maybe anticipating the OpEx decision. So I think it's almost very limited impact, in fact, for this year. For next year, it has a better impact.

 

Sysco Corp (Earnings Call - 5/5)

In the fourth quarter of fiscal 2020, the expense reductions, while significant, will be more than offset by the top line sales volume decreases that we are experiencing. Additionally, we have reduced capital expenditures to only business-critical transformational projects. Physical projects like building expansions, fleet purchases, they have been put on hold. Our CapEx investments will focus on those things that will improve Sysco's capabilities and will allow us to win market share in the future.

 

DuPont de Nemours (Earnings Call - 5/5)

In the quarter, we closed the sale of our Compound Semiconductor Solutions business, generating over $400 million in gross proceeds. We are also taking the prudent action to pull back on certain CapEx, reducing our spend by about $500 million versus the prior year. We elected in mid- to late-March to pause share buybacks after we had repurchased approximately $230 million in the quarter. While shareholder remuneration remains a critical component of our financial policy, this was a practical action at the time in order to conserve cash.

 

Ferrari (Earnings Call - 5/4)

Turning to our revised guidance for the year. You will first note that we have widened the range given the lack of full visibility and the current unpredictability of events. Our guidance rests on the numerous factors I've already mentioned. It includes several cost-cutting initiatives across-the-board and a delay in several planned activities as well as a reduction in capital expenditures of some EUR 75 million. We have been extremely judicious in determining which expenditures to cull following two key principles. The first is to retain total flexibility as each month unfolds and the second is not to impair our competitiveness going forward while retaining our full responsibilities towards our suppliers, our dealers, our clients and, first and foremost, our employees.

Our full year guidance in simple terms reflects a very weak second quarter. In fact, it accounts for the bulk of our erosion versus our previous guidance. Indeed, at the low end of our EBITDA range, it reflects approximately 75% of the erosion versus our prior guidance and the entire erosion versus the prior year. At the higher end of the range, the second quarter will account for the entire shortfall relative to both our previous guidance and the prior year, such that it assumes a V-shaped recovery with the second half of the year generating an increase in revenues of some 10% and an EBITDA growth of some 15% versus the prior year, and this despite the challenges we face beyond our core business.

 

Chevron Corp (Earnings Call - 5/1)

That said, the pandemic is presenting challenges. Restrictions on the movement of people and goods and positive COVID cases in 6 of the more than 100 residential camps in Tengiz have triggered changes. While critical path construction activities proceed, we're temporarily demobilizing noncritical path personnel. As a result, we anticipate some degree of impact to project cost and schedule, but it's too early to quantify this in any meaningful way. Our forecast of 2020 capital expenditures for the project has been reduced by about $1 billion, our share, due to deferred activity, cost mitigations and expected currency benefits.

Turning to our overall capital outlook. We're further lowering our full year 2020 organic capital guidance to as low as $14 billion, down from $16 billion announced in March. Second half CapEx could be as low as $6 billion or a run rate up to 40% lower than our original budget. The incremental reductions since our March press release are primarily focused on TCO and short-cycle investments.

 

Exxon Mobil Corp (Earnings Call - 5/1)

We set an aggressive objective: reduce spend without compromising the project advantages or returns. Any inefficiencies had to be offset with market savings or other efficiencies. I'm very pleased with the work we have done to date. Through extensive collaboration, we've identified opportunities to reduce our CapEx by 30%, down to $23 billion, and more than offset deferral costs, preserving the returns and project advantages.

 

Estee Lauder (Earnings Call - 5/1)

For the 9 months, we generated $1.95 billion in net cash flows from operating activities, an increase of 11% from the prior year. We invested $468 million in capital expenditures and $1.04 billion to acquire the remaining interest in Dr. Jart+. We also used $883 million to repurchase shares and $502 million to pay dividends. To further enhance near-term liquidity, we are focusing our capital investment on areas necessary for future growth and paring back in areas such as retail renovations and office improvements. We cut our planned capital expenditures by 1/3 and now expect to spend between $600 million and $650 million for the full year.

Additionally, we have suspended share repurchases for the balance of this fiscal year and our quarterly dividend that would have been paid in June of 2020. All of these activities greatly enhance our ability to manage through the shutdown in brick-and-mortar for an extended period of time while we focus on stimulating greater consumption online.

 

Honeywell (Earnings Call - 5/1)

Moving to PMT. The dramatic volatility and decline in oil prices related to the OPEC+ dispute, coupled with the COVID-19-related supply chain disruptions, has created a challenging environment. We are encouraged by the OPEC+ production cut agreement, and we hope for even broader action. However, we need to see a sustained increase in demand to see a more meaningful impact in the marketplace. As we've said in the past, oil price volatility and sustained pressure on prices often leads to project delays and customer CapEx and OpEx budget cuts, which is what we are seeing today. We expect a steep decline in refining production in the second quarter and continued weakness in gas processing. The reduction of customer CapEx and OpEx budgets will create headwinds for our Products businesses, in Process Solutions and UOP with declines in field services, equipment and catalyst shipments. Additionally, we anticipate new projects will push to the right, putting pressure on UOP licensing and engineering volumes in the near term.

 

Illumina (Earnings Call - 4/30)

That said, we are managing expenses very carefully. In the near term, there are savings associated with restricted discretionary expenses, including travel, marketing events and consulting, and slower hiring associated with a lengthening hiring cycle. We are also reducing spend on contract and temporary labor in certain functions. Finally, we have delayed certain non-R&D projects and delayed or canceled certain capital expenditure projects. Compared to our original budget for the year, second quarter operating expenses have been reduced by more than $40 million. We are also preparing for additional cost savings opportunities if shelter-in-place orders remain prevalent into the third quarter. While we are all hoping for loosening of restrictions in the near future, we have planned for a range of scenarios that we can activate if needed. We will monitor the situation carefully throughout the rest of the second quarter to assess whether we need to take more aggressive actions more quickly. This includes a careful reassessment of our capital investment plans and gating programs in some cases. In the meantime, we continue to hire and onboard new team members virtually but retain the flexibility to pause or limit hiring or slow other investments if the pandemic is prolonged.

 

Stryker Corp (Earnings Call - 4/30)

In addition to the discretionary spending controls I previously outlined, we have also taken steps to conserve cash, including reductions in planned capital expenditures and project spending, focusing on opportunities and accounts payable and slowing M&A activities. Considering our cash holdings and available credit lines, from a liquidity standpoint, we are well positioned. We currently have available credit lines, none of which are drawn on at this time, of approximately $3 billion.

 

Conocophillips (Earnings Call - 4/30)

Question – Devin McDermott: There are a few asked already on capital spending and the balance sheet, but I wanted to just follow-up in a bit more detail on that. And you provided back at the Investor Day, your helpful analysis of stress testing. The balance sheet and cash flow profile through a low commodity price period. And clearly, what we're seeing right now is a bit unprecedented, different than that stress test, but the balance sheet is still a very strong competitive edge for you.

I was wondering if you could just give an update on how you're thinking about the required cash balance and willingness to take on kind of additional leverage here or early in on the balance sheet, to the extent we see a sustained period of long -- of low prices over the next few quarters to years? And at what point further CapEx cuts become consideration?

Answer – Don Wallette: Devin, this is Don. I'll take that. As far as cash balances back at the Analyst Day, I think we said that we had an operating requirement of about $1 billion, and we felt like we wanted to keep a reserve balance on top of that of $2 billion to $3 billion. I think generally, we feel the same way about it. Technically, it's probably -- those numbers have probably come down a little bit. Operating cash is not quite $1 billion because -- mainly because of some of the assets that we've sold, we just don't need that much.

And the reserve capital or the reserve cash -- that's a number that we recalculate every month based on our outlook for the next six to 12 months. And that number has probably come down a little bit because of our lower spending on Capex, OpEx by the suspension of our buyback program. But it might be $1 billion lower than what we were thinking in November, but that's about it.

 

Royal Dutch Shell (Earnings Call - 4/30)

Firstly, we will focus on the reduction of cash capital expenditure. And for the full year 2020, we will see a reduction to $20 billion or below compared with a plant level of around $25 billion. So far, we have made good progress in working to reduce cash capital expenditure. The approach there is to, of course, protect our assets, spending what is required on integrity, continue with the projects, which a final investment decision has already been taken, and focus on robust investments that will give us short-term return. So we have gone through a detailed project-by-project review in each of our businesses, and we, indeed, expect to achieve the $20 billion or lower cash CapEx spend this year. And some of the recent announcement that you may have seen are the result of those ongoing project reviews

 

McDonald’s (Earnings Call - 4/30)

In terms of capital expenditures, we've taken a very practical approach to development activity. We suspended Experience of the Future groundbreaks in the U.S. and new restaurant openings around the world as COVID-19 began to spread. Given that our first quarter CapEx is typically about 20% of the full year and many projects are delayed or on hold, we now have some flexibility with decisions for the majority of our planned capital spend for the year. As a result, we're reducing our 2020 spending by about $1 billion from our initial expectation of $2.4 billion.

 

Facebook (Earnings Call - 4/29)

Turning now to capital expenditures. Our significant investments in infrastructure over the past 4 years have served us well during this period of high user engagement. We plan to continue to grow our CapEx investments to enhance and expand our global infrastructure footprint over the long term. In 2020, we now expect capital expenditures to be approximately $14 billion to $16 billion, down from our prior range of $17 billion to $19 billion. This reduction reflects a significant decrease in our construction efforts related to shelter-in-place orders. Given the strong engagement growth and related demands on our infrastructure, this year's CapEx reduction should be viewed as a deferral into 2021 rather than savings.

 

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