Thursday, February 27, 2020

Our previous post about Yum Brands’ exposure to coronavirus risk got us wondering — what’s the potential financial impact for other companies? If vast swaths of the Chinese economy are currently under quarantine, what firms might feel real pain because of that?

We decided to run a quick analysis of S&P 500 firms that report quarterly revenue from China, comparing their Q1 2019 China revenues against total revenues for that period. Table 1, below, shows the top 12 firms we found.

As you can see, those firms collectively reported $236.8 billion in total revenue for Q1 2019, and about 8.1 percent of that — $19.26 billion — came from China. Firms with the greatest exposure included Apple ($AAPL), Starbucks ($SBUX), and MGM Resorts ($MGM).

This does not mean that these firms, or the S&P 500 overall, will see 8.1 percent of their revenue wiped out for Q1 2020 when filings for that period start arriving in late April. We know that the effect of coronavirus will be bad, but nobody really knows how bad yet.

On the other hand, our numbers above are from firms that report China revenues as a geographic segment — and not all firms do that. Some companies report China revenue as part of an Asia-Pacific geographic segment; or they report revenues from China as part of a worldwide operating segment rather than a geographic one.

All of which means that total revenue from business in China is higher than what firms actually report as segment revenue from China.

This exercise simply shows how Calcbench can sharpen your understanding of financial and operating risks, so you can ask better questions of the firms you follow. For example, these Table 1 numbers come from our Segments and Breakouts database, and they flag businesses self-proclaim significant China revenue.

You can also create email alerts for companies you follow, and fix your settings to be alerted any time those firms file earnings releases or Form 8-K filings — which is typically how a company will communicate that, oh boy, this coronavirus thing is going to make us miss our numbers. That is what Mastercard ($MA), Microsoft ($MSFT), and Apple have all had to say lately.

Then you can bounce over to our Interactive Disclosures database to search their Risk Factors, Management Discussion & Analysis, or earnings releases to see what else they’re saying about coronavirus — such as, say, whether they expect all their China revenues to evaporate for one quarter, or only a portion of China revenue over several quarters.

That’s how you can get to a fuller understanding of this new risk, and respond accordingly.

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