Pain from the coronavirus outbreak is continuing to impact on ASX shares as the disease spreads.
The flow-on effects to the global economy are mounting as travel bans restrict movement both within and from China. Here we take a look at how the outbreak has impacted these three S&P/ASX 200 Index (INDEXASX: XJO) shares.
Blackmores Limited (ASX: BKL)
On Wednesday, Blackmores reported a massive 48% fall in profits for the first half, scrapping its dividend as it warned that the second half would likely be worse due to disruption from the coronavirus outbreak.
After reaching a 6-month high of $94.95 on 5 February, shares in the vitamin maker have fallen more than 20% to close at $73.60 today.
In its recent half-year results, Blackmores reported that the rollout of new product labels (required due to new product regulations imposed by Australia’s Therapeutic Goods Administration) had been disrupted by the coronavirus outbreak.
Forecast costs associated with the change have been revised in the face of this disruption with the work expected to have a $7 million impact on earnings before interest and tax (EBIT) in the second half.
The outbreak of the coronavirus has caused fallout in China, one of Blackmores’ key growth markets, as well as supply chain disruptions. Channels which rely on the free flow of passengers such as duty-free, small business traders, and tourism, have been disrupted.
Additionally, some e-commerce partners have cancelled or modified February promotions due to the slowdown in China inbound and internal freight which has made it difficult to serve the local market.
Treasury Wine Estates Ltd (ASX: TWE)
As reported in the Australian Financial Review (AFR), Citi estimates that Treasury Wine Estates could see profits fall by $15 million due to the coronavirus outbreak.
China is the company’s most profitable market, with its luxury and prestige wines including Penfolds particularly profitable. Citi estimates that Treasury Wine makes about $22 million in profits each month in China but expects volumes in China to fall by around 20% over the next few months.
Additionally, Citi has cut Treasury’s forecast earnings growth for 2019-20 from 6% to just 1%, and cut its 12-month price target to $12.30 from $13.70.
On Wednesday, Treasury acknowledged the potential impacts of the outbreak but said it was too soon to make predictions about the extent of impacts. “Should there be a sustained material impact on consumption, this would impact FY20 earnings,” the company said.
Cochlear Limited (ASX: COH)
Cochlear cut its profit forecast this week due to the impact of hospitals deferring surgeries, including cochlear implants. Hospitals in China, Hong Kong, and Taiwan are delaying surgeries to reduce people movement and limit the spread of the coronavirus.
As a result, Cochlear cut net profit guidance by around 5% to be between $270 million – $290 million, down from a range of $290 million – $300 million.
Cochlear chief executive Dig Howitt said, “while we cannot predict how long surgeries will be delayed, the low end of guidance factors in a significant decline in sales for Greater China for the second half.” Delayed surgeries are expected to progress when hospitals resume normal operations.
The company assumes there will be no material disruption to its supply chain, including the importation of components from China, with suppliers expected to resume production following the Lunar New Year shutdown. Cochlear reports it has a three-month inventory of most components.
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Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia owns shares of and has recommended Blackmores Limited and Treasury Wine Estates Limited. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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