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Companies preparing for financial harm from coronavirus effect on supply chains

The coronavirus pandemic's disruption of global supply chains is going to be felt on the financial books of a wide swath of U.S. companies, some of which have already lowered guidance for the year.

"The story the data tells is that companies are faced with a lengthy recovery to normal operations in the wake of the virus outbreak," said Thomas Derry, CEO of the Institute for Supply Management, which found in a survey that nearly 75% of U.S. businesses have had supply lines affected by the outbreak. The survey found that one-sixth of respondents have decreased revenue targets.

Clothing retailer Abercrombie & Fitch Co. said in its most recent earnings report that it expects a $40 million to $50 million adverse impact on first-quarter net sales due to the coronavirus. For the year, the company expects a $60 million to $80 million hit.

Many clothing companies have been able to limit the disruption because they were already seeking alternatives to China, shifting manufacturing to Vietnam, Cambodia and Bangladesh due to rising labor costs and the U.S.-China trade war.

Apple Inc., Coca-Cola Corp., and Microsoft Corp. told investors that they expect to not hit certain fiscal benchmarks this year due to the supply chain disruptions and other resulting factors of the coronavirus.

"For the third quarter of fiscal year 2020, we do not expect to meet our More Personal Computing segment guidance as Windows OEM and Surface are more negatively impacted than previously anticipated," Microsoft said in a statement. "All other components of our Q3 guidance remain unchanged."

Apple, which has suppliers in the Chinese city where the outbreak started, used a network of alternative suppliers. Investors rewarded the mitigation plan, and shares shot up 9.3% the day after the company's Feb. 28 earnings call.

On the healthcare side, Zynerba Pharmaceuticals Inc. said in a recent filing that the virus could "materially and adversely impact" its operations and those of its third-party partners. On top of that, the continued spread could also negatively impact manufacturing of Zygel, a pharmaceutically produced cannabidiol, as well as its clinical trial timelines and financial condition.

Outside earnings projections are falling, too. Goldman Sachs Group Inc. lowered its aggregated S&P 500 full-year EPS forecast to $157, following a previous lowering to $165 from $174, due in part to the coronavirus. The bank said it now expects EPS to drop roughly 15% in the second quarter of 2020 and a further 12% in the third quarter.

The coronavirus, which devastated much of mainland China in January and February and led to mass factory shutdowns and quarantined workers, has now infected more than 130,000 people and killed more than 4,000 worldwide, according to data compiled by Johns Hopkins University.

Mary McGinty, a spokesperson for the National Retail Federation, told S&P Global Market Intelligence that the virus is expected to have a "longer and larger impact" on imports at major U.S. retail ports than initially expected.

The group is confident that retailers will ultimately remain strong due to increased demand for certain products and e-commerce capabilities, with a quarter of consumers recently polled saying that they are stocking up on food and other household items.

Those essential supplies have included hand sanitizer, toilet paper and nonperishable food, which has led warehouse company Costco Wholesale Corp., to estimate "approximately three percentage points" of added revenue growth, though it does admit shortages for virus-linked products, according to Panjiva.

Panjiva is a business line of S&P Global Market Intelligence, a division of S&P Global Inc.