The evolving coronavirus crisis has dominated news coverage and has gripped global markets in recent weeks. While a majority of the attention has rightly focused on diagnosis, containment, and treatment, there are growing questions of the longer-term impact of this crisis on the broader economy. We have already begun to see an impact via increased volatility in equity markets and steep declines in oil prices (portending fears of slowing growth). While markets have calmed somewhat in recent days with news of better containment and treatment availability, there are still strict travel restrictions to and from China in place and large areas within China under quarantine.
The focus for investors, therefore, will begin to move past the immediate health crisis and center on the extent of the disruption to economic activity, specifically to supply chains. While early prognostications are measuring the eventual impact in GDP percentage points, we would expect to begin seeing this reflected more immediately in first quarter earnings results in April/May and discussed during presentations at spring conferences.
The question then for companies is how to effectively communicate with the investment community to ensure that the potential impact to operations and financials is well understood and that outsized reactions to that impact are contained. In the near-term, investor focus is on direct impact, namely those companies who are providing effective treatments on the positive side and those with meaningful exposure to Wuhan and its surrounding area on the negative side. Over time, however, attention will turn to how this crisis might affect financial results.
The quality and quantity of information regarding the spread, containment, and treatment of coronavirus are increasing every day, but there remains significant uncertainty, and we advise companies to be proactive in providing as much color as possible regarding the potential implications of this crisis on their operations and financial results.
An instructive example from recent history was the March 2011 earthquake and tsunami that struck Japan and caused the nuclear accident at the Fukushima Daiichi nuclear power plant. In the immediate aftermath of this disaster, there were fears of widespread illness and death from radiation exposure (not to mention the enormous number of lives lost as a result of the earthquake and resulting tsunami), as well as large-scale destruction to infrastructure. There were also concerns about whether evacuees from the area would eventually return to the area, raising additional questions about longer-term impact.
The companies that weathered the volatility most effectively in the ensuing months were those who were proactive and forthcoming about their exposure to Japan, both in terms of customer base and possible manufacturing/supply disruptions. Among the most effective tactics were:
- Proactive commentary in the prepared remarks section of earnings call scripts
- The addition of Japan-related content in the investor presentation for use in conference presentations or in investor meetings
- Additional content on the front page or IR section of the company website
- In rare cases for companies with particularly high levels of exposure, a special conference call dedicated to discussing the impact.
This is a particularly crucial part of the calendar, as most companies have not yet reported fourth quarter or full-year 2019 results, meaning that these companies have still not provided 2020 guidance or qualitative commentary on what they expect 2020 to bring. In addition, late February marks the beginning of the busy late winter/early spring investor conference season.
Therefore, the time is now for companies to develop proactive communications strategies to address the inevitable questions from analysts and investors over the expected impact from coronavirus. For many companies, it might be negligible. But every company with exposure to China should expect to receive questions to that effect and be prepared with thoughtful and comprehensive responses.
Jeremy brings 15 years of experience in healthcare, both as a sell-side analyst and as an investor relations advisor. Jeremy covered both medical devices and healthcare services as an analyst at such firms as Bank of America, Oppenheimer, and Cantor Fitzgerald, and he was quoted regularly in the financial press. As the founder of Whalebone Advisory, he built extensive experience developing and executing investor relations strategies for pre-IPO and publicly-traded healthcare companies and counseling senior executives on messaging to Wall Street, including guidance philosophy, earnings preparation, and corporate access plans. Jeremy presently serves on the boards of the Edgemont Community Council and of the Fraternal Order of Bendin-Sosnowicer. Jeremy earned an MBA in Finance from the Leonard N. Stern School of Business at New York University, a Diploma in Economics from the London School of Economics, and a BA in Economics and Political Science from the University of Chicago.