Diageo and Danone latest global giants to warn of coronavirus hit
The huge threat facing global sales and supply chains of the world’s largest companies from the coronavirus outbreak took centre stage as Diageo — owner of Guinness, Baileys, Smirnoff, and a host of other spirits — and Danone, which also operates facilities in Ireland, said their sales and profits could take a large hit.
Diageo, which sells its drinks and spirits across Asia, said the disruption in China and Asia could cost it as much as £325m (€388m) in lost sales this year.
It said that it would continue “to monitor the situation closely” but that it remained confident about the future of its key markets in China and the rest of Asia.
In Greater China, “bars and restaurants have largely been closed and there has been a substantial reduction in banqueting. As the majority of consumption is in the on-trade, we have seen significant disruption since the end of January which we expect to last at least into March,” said Diageo.
Danone warned the coronavirus outbreak would hurt its 2020 earnings and mean a €100m hit to first-quarter sales, mainly in its Mizone water business in China.
Danone generates about 30% of its baby food nutrition products in China and 10% of its overall sales.
Diageo and Danone are only the latest of the world’s largest companies to take count of the prolonged disruption caused by the outbreak as it spread into Italy.
Apple last week warned about the effect of closed shops in China for sales of its products and disruption to its supply chain.
Closer to home, Swedish home appliance maker Electrolux and a range of major US banks have banned employees travelling to Italy.
Economists, meanwhile, are assessing whether the economic shock will tip Italy, which carries a huge debt, into another session.
There were signs, however, that the shock this week to investors as the coronavirus leaped from Asia into Europe has eased somewhat as global stock markets for the first time this week stemmed heavy selling and turned higher for the first time this week.
The price of oil — a key measure of fears surrounding the world economy — failed to rebound strongly, as economists continued to fear the fallout could tip Italy and other vulnerable European economies into recession.
Business group Ibec said that the coronavirus outbreak could weigh on hopes for the recovery of the European economy this year.
“China has accounted for a third of global growth in the past decade and feedback from member companies suggests that the impact of the coronavirus outbreak is now being witnessed in global supply chains,” Ibec said.
The Ftse 100 in London and the Cac 40 index in Paris ended slightly higher, and the Dax in Frankfurt edged higher.
Italy and other eurozone countries hit by the coronavirus outbreak are expected to benefit from waivers under EU fiscal rules that will allow them to spend more to tackle the emergency, the EU’s economics commissioner said.
Joshua Mahony, senior market analyst at online broker IG, said a sense “of relative clam” had descended for global stock markets but there were “ongoing concerns” for SMEs.
He said that the sharp declines for London’s small companies markets, AIM, showed “a heightened risk of a UK-wide Wuhan-style coronavirus episode which could see partial shut-downs hit small and underfunded firms”.
He added: “Shutdowns in Italy highlight the potential for the Wuhan experiences to be replicated globally, with crude demand likely to plummet if mobility becomes restricted throughout other parts of the world.”
Capital Economics in London warned that the recovery in China will take longer than looked likely just a few weeks ago.
“China’s economy will contract outright in year-on-year terms this quarter, for the first time since at least the 1990s. The leadership appears to be readying significant stimulus which should restore employment and output by the third quarter, but the hit to output during the first half of the year will still result in much slower annual growth,” it said.
