What SEC filings reveal about the pandemic

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In broad strokes, the picture that emerges from data collected since the coronavirus arrived in the Rochester region is one of seismic economic damage. From March 14 to June 20, 144,527 initial claims for unemployment insurance benefits were filed in the Finger Lakes region—131,390 more than in the same period a year ago. Monthly sales tax collections were down 35.4 percent in June after falling 25.4 percent in May.

But aggregated numbers can obscure the fact that not all companies or segments of the regional economy have been equally hard-hit. Factors such as industry category and ability to pivot to telework have mattered, especially during the two-month lockdown.

To get a better idea of the pandemic’s impact on a range of key local employers, I looked at recent filings with the U.S. Securities and Exchange Commission by more than a dozen publicly held firms with headquarters or significant operations in the Rochester region.

Through the SEC filings a more textured picture emerges, one that reveals how these companies responded to the coronavirus crisis, how the stay-at-home orders impacted their revenues and operations, and what might lie ahead as the economy reopens.

The impact so far

As with macroeconomic data, public companies’ SEC filings involve a time lag; for many firms, the most recent financial numbers cover only through the end of March—roughly two weeks into New York’s shutdown. But the quarterly reports—and occasionally other filings on material events—clearly indicate that COVID-19 was disrupting operations and, in most cases, hurting revenues.

Eastman Kodak Co. expects sales volumes in the second quarter to be negatively impacted.

In its filing for the first quarter ended March 31, Eastman Kodak Co. said the COVID-19 pandemic did not have a material impact on revenues but “sales volumes in the second quarter … are expected to be negatively impacted and collections of accounts receivable are expected to slow.” Among the problems it faced: Kodak Alaris told Kodak that it “did not intend to pay undisputed invoices for three months to conserve its cash resources during the COVID-19 pandemic.”

For Xerox Holdings Corp., the adverse impact was not limited to revenues and net income. At the end of March, the company announced it was dropping its bid to acquire HP Inc., citing the “ongoing COVID-19 global health crisis and resulting macroeconomic and market turmoil.”

Paychex Inc., in a May 19 COVID-19 business update presentation, told investors that in March and April it saw declines in payroll check volumes and an increase in number of non-processing clients as businesses suspended operations. President and CEO Martin Mucci, who in late April had told me that more than 95 percent of the firm’s 15,000 employees were telecommuting versus 6 percent before COVID-19 struck, voiced optimism in the presentation: “While the impact on the economy of COVID-19 is severe, we are pleased to see early signs of moderation and stabilization in our key business metrics.”

Monro Inc., whose fiscal year ended March 31, reported at the end of May that it experienced a “substantial drop” in business in the second half of March due to the impact of the pandemic restrictions. President and CEO Brett Ponton said “our operations continue to be significantly impacted by COVID-19, with comparable store sales declines in April and May month-to-date of approximately 41 percent and 24 percent, respectively.”

Ponton added that the company—a leading auto service and tire provider with more than 1,283 stores and nearly 100 franchised locations in the Mid-Atlantic and New England regions—was encouraged by the “gradual improvement in traffic we have seen towards the end of May as stay-at-home orders are lifted across the nation,” adding that it is “focused on the elements of the business within our control.”

In early May, Gannett Co. Inc. said that in March it “began to experience decreased demand for its advertising and digital marketing services as well as reductions in events and the single copy and commercial distribution of its newspapers.” Looking ahead, Gannett expects that the pandemic will have “a significant negative impact on (its) business and results of operations in the near-term.”

Graham Corp., the Batavia-based designer and builder of vacuum and heat-transfer equipment, reported that the pandemic “a sudden and severe impact on our fourth quarter and first quarter of fiscal 2021, and leaves us with an uncertain outlook.”

In a June 10 release on its fiscal 2020 fourth-quarter and full-year results, President and CEO James Lines said: “Out of caution, we had reduced production to approximately 10 percent of capacity during the latter half of March and first half of April. As we have been ramping our production operations back up to normal levels, we have instituted strict safety and health protocols. We expect to be at approximately 90 percent of full capacity in June and believe we will average about 50 percent of production capacity for the first quarter of fiscal 2021.”

“COVID-19 pandemic has presented significant challenges to our business,” Bausch Health Cos. Inc. said when reporting its first-quarter results. While expressing confidence that it is “well-positioned to return to growth after the impact of the pandemic fades,” the company lowered its projected full-year revenue range to $7.80 billion to $8.20 billion from $8.65 billion to $8.85 billion.

For Xerox Holdings Corp., the adverse impact was not limited to revenues and net income.

Battery maker Ultralife Corp. has been able to continue normal operations other than a roughly one-month closure of its China facility mandated by the Chinese government. That closure and supply-chain disruptions had a negative impact on the firm’s operating results in the quarter ended March 21.  It estimated the effects of COVID-19 adversely impacted net income—reported at $1,074,000—by approximately $500,000.

But overall, Ultralife touted its “strong results,” and President and CEO Michael Popielec noted the company was “investing approximately $1 million in the second quarter for additional test equipment to meet the increased demand for our power supplies for ventilators, respirators and infusion pumps.”

L3Harris Technologies Inc., which has its Communications Systems and Space and Airborne Systems segments here, acknowledged COVID-19’s adverse impact on some of its operations, but in the Rochester region it continues to grow. It plans to have 300 new workers locally by the end of the year, and since January it has announced new contracts valued at up to $600 million.

Constellation Brands Inc.’s president and CEO thinks his firm’s market focus—85 percent to 90 percent of its beer, wine and liquor sales are off-premise—will limit the impact the pandemic’s impact on the company, which was forced to shutter its Corona operations in Mexico. However, Bill Newlands in early April told CNBC’s Jim Cramer it was too “risky” to offer a full-year outlook due to coronavirus uncertainty.

Transcat Inc., which sells professional electronic test equipment and provides calibration and repair services, reported in late May that it was able to “produce strong results in the fourth quarter of fiscal 2020 (ended March 28) despite the headwinds created by the pandemic.” At the same time, however, to “protect (its) financial strength and liquidity,” the company has taken a number of steps that include a freeze on most hiring and wage increases, and salary reductions for its CEO and other executive team members.

Newark-based IEC Electronics Corp.’s 100 percent U.S. manufacturing footprint “makes us an increasingly attractive supply option for existing and potential customers given current and anticipated future trade complications associated with the COVID-19 pandemic,” President and CEO Jeffrey Schlarbaum said when the company reported its results for the quarter ended March 27. He added that “we remain on track to open our new state-of-the-art facility this summer and believe we are well positioned to increase our market share.” The company faces “a level of uncertainty around the availability of raw material components” going forward, however.

Limiting the damage

Even for companies that have managed to maintain full operations and keep all employees on the payroll, by no means has it been business as usual. IEC, among others, had to make changes to its work environment. Like Paychex, a number of firms—including L3Harris, Graham, Monro, Xerox, and investment manager Manning & Napier Inc.—said they had made significant shifts to work from home. And shareholder meetings for Kodak, Xerox, Gannett and others have gone virtual.

What’s more, limiting the negative financial impact has required difficult measures. Steps taken to cut costs include furloughs, reduced compensation for executives and others, and suspension of dividends.

Kodak disclosed that it was reducing operating costs “through the use of temporary furloughs and pay cuts for its employees and the deferral of certain R&D spend(ing).” Gannett also adopted furloughs and pay cuts, to help offset the “impact on our business from the pandemic (which) came fast and is significant.”

In mid-April, Monro said in a filing that “in connection with cost reduction measures instituted … in response to the economic impact of the COVID-19 pandemic, the employment of Deborah Brundage, the company’s senior vice president, chief marketing officer and named executive officer, was terminated.”

A handful of the local public companies reported they’d applied for and received Paycheck Protection Program loans, which are a significant part of the federal government’s response to the severe recession brought on by the pandemic. However, after public outcry about certain companies that received the forgivable loans and clearer guidance from Washington, at least two—Ultralife and Manning & Napier—said they would return or decline to take the funds.

Uncertain outlook

When the public companies file their latest quarterly reports starting next month, the extent to which they are weathering the COVID storm will be clearer. Many think—or at least hope—that the April-June period will be the low point, with recovery well under way by the end of September. Nonetheless, their filings to date underscore the uncertainty they face, and in some cases, they have withdrawn the guidance they provide to analysts.

The markets often are described as forward looking, and investors may have already drawn conclusion about these firms’ prospects as the pandemic plays out. What does investor sentiment indicate? That more tough times could lie ahead for a number of these companies. Of the 13 firms I looked at, 12 had stock prices that were down year to date as of June 19. The one exception—Manning & Napier—got a bump in mid-April on the heels of an exchange agreement involving roughly $90 million in shares owned by founder William Manning.

The other companies’ share prices plunged as the pandemic gripped the U.S. and the stock market shed more than 30 percent of its value. Then, as the major indices began to regain ground starting in April, several local firms bounced back: IEC, which was down roughly 45 percent in mid-March, now is close to where it started the year; Ultralife’s share price fell more than 30 percent, then reversed direction and was up 15 percent, before retreating to a slight decline; Paychex was off about 40 percent at one point but has regained two-thirds of that. Even so, all were still down year to date.

Other companies are much deeper in negative territory. Xerox and Kodak remain down 50 percent or more, and Gannett on June 19 was down 71 percent for the year—better than mid-March, when its shares had lost 90 percent of their value, but hardly a vote of investor confidence.

It’s hard to see very far into the future, to be sure. But with Covid-19 cases surging in many states across the country, it’s likely the road ahead for these public companies—even those best positioned to limit the pandemic’s impact—will be strewn with obstacles.

Paul Ericson is Rochester Beacon executive editor. All coronavirus articles are collected here.

2 thoughts on “What SEC filings reveal about the pandemic

  1. All this was predictable, and when a restaurant like The Bonefish closes unexpectedly one can only wonder how the little businesses are faring. No doubt, many are looking at their situation and hoping they can struggle on; maybe even taking loans out on their personal property, just to ride out this storm. It’s a recipe for disaster for these small businesses, because they will over extend themselves and ultimately fail.
    Unfortunately, it’s very hard to knock something on the head like a small business, it’s personal. But there comes a time where common sense must prevail, and the axe must fall.

    In the meantime, the Village of Fairport has not seemed to grasp the magnitude of the problem and has raised everyone’s property taxes by several percent. While the real world of commerce cuts it’s cloth and makes sacrifices, the trustees of this village carry on as normal, annually raising our taxes by the maximum every year.

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