Nearly Half of S&P 500 Companies Citing Negative Impact from Hurricanes in Q3 Earnings Calls

While the majority of S&P 500 companies will report earnings results for Q3 2017 over the next few weeks, about 6% of the companies in the index (28 companies) have already reported earnings results for the third quarter (through October 12). Given the number of concerns in the market, have these companies discussed specific factors that had a negative impact on earnings or revenues in the third quarter (or are expected to have a negative impact in future quarters) during their earnings conference calls?

To answer this question, we searched for specific terms related to a number of factors (e.g., “currency,” “China”) in the conference call transcripts of the 28 S&P 500 companies that have conducted third quarter earnings conference calls through October 12 to see how many companies discussed these factors. We then looked to see if the company cited a negative impact, expressed a negative sentiment (such as “volatility,” “uncertainty,” “pressure,” or “headwind”), or discussed clear underperformance in relation to the factor for either the quarter just reported or in guidance for future quarters. 

Hurricanes have been cited by the highest number companies in the index to date as a factor that either had a negative impact on earnings or revenues in Q3 or is expected to have a negative impact on earnings and revenues in future quarters. Of the 28 companies that have reported results for Q3 2017 through October 12, 13 (or 46%) have discussed a negative impact from this factor. 

Foreign exchange rates have been cited by the second highest number of companies in the index to date as a factor that either had a negative impact on earnings or revenues in Q3 or is expected to have a negative impact on earnings and revenues in future quarters. Of the 28 companies that have reported to date, 11 (or 39%) have discussed a negative impact from this factor. However, it is interesting to note that a number of S&P 500 companies also stated that they expect to see either a smaller negative impact or some positive impact from foreign exchange rates on their earnings and revenues in future periods.

What Companies are Saying about Hurricanes During Q3 Earnings Calls

These are the hurricane-related comments we heard during Q3 earnings calls, in chronological order:

Autozone: “We've had more than 600 stores closed at some point as a result of these storms.” (September 19)

FedEx: “Our first quarter adjusted EPS was $2.51, compared to an adjusted $2.82 last year. The $2.51 reflects the estimated negative impact of $0.79 from the TNT Express cyberattack and $0.02 from Hurricane Harvey.” (September 19)

CarMax: “Harvey hit Houston during the last week of our second quarter. All six of our stores in the Houston market were closed for the last 5.5 working days of the quarter. [. . .]We are pleased to report that all of our stores are open for business. We closed 28 stores, primarily in Florida and Georgia, for varying lengths of time in September. And as we previously discussed with weather events, we would expect to realize those sales later.” (September 22)

Carnival Corporation: “In the third quarter, there was a little bit less than a $0.01 negative impact as a result of Hurricane Harvey, but it was tiny. The $0.10 to $0.12 was in total for the year including that impact, $0.09 of the $0.10 to $0.12 were canceled voyages, expenses we incurred, some lower occupancy on the voyages that took place immediately after Irma. And the other $0.01 to $0.03 is the estimated booking impact for the fourth quarter.” (September 26)

Cintas: “The guidance does include our preliminary estimates of the negative impact from the hurricanes. Based on our early assessment, we estimate fiscal 2018 revenue to be reduced by approximately $10 million to $15 million and EPS to be reduced by about $0.05 to $0.08. These estimates are subject to change as more information becomes available.”  (September 26)

Darden Restaurants: “We expect the impact of Hurricane Irma to be double the impact of Hurricane Harvey. And remember, Hurricane Harvey was about 30 basis point in comps and $0.015 in EPS. So think 6 points in comps and $0.03 in EPS.” (September 26)

Lennar Corp.: “As we came to the end of the third quarter, Hurricane Harvey came through in Texas, and that was followed by Irma at the beginning of the fourth quarter. For homebuilders and homebuilding divisions on the business side, these storms present many cumbersome challenges, whether the storm is a direct hit or a near miss. Preparation for these storms requires a shutdown of the business operations with extensive preparation to batten down the hatches, so to speak. And due to the business disruption, we expect approximately 950 closings will be pushed from 2017 into 2018. Additionally, given the volume push into 2018, the positive trajectory of our margins will be temporarily impacted as well.” (October 3)

Paychex: “We do expect that the hurricanes will have an impact on our sales and revenue in the next quarter, this current quarter that we're in now, as businesses may be forced out of business, at least temporarily.”  (October 3)

PepsiCo: “We estimate the impact of the recent natural disasters to negatively impact EPS by approximately 3 percentage points, and we expect sequential improvement at our North American Beverage business.” (October 4)

Constellation Brands: “We believe the recent natural disasters had a minor impact on our Q2 results and may have some minimal impact on Q3 results, which we factored into our new guidance. However, we continue to monitor the situation in these affected areas.” (October 4)

Costco: “This year's fourth quarter SG&A expenses included an $11 million or about $0.015 negative hit related to Hurricane Harvey. This represented about a 3-basis-point detriment to our reported SG&A percentage in the quarter.” (October 5)

Fastenal: “We estimate that the hurricanes that hit the Gulf, the Southeast, and Puerto Rico shaved 20 basis points to 30 basis points from revenue during the quarter.” (October 11)

Delta Air Lines: “We generated 6% top line growth, a 16% operating margin, and $1.6 billion of operating cash flow, while facing pressure from rising fuel prices and $120 million headwind from Hurricane Irma.”  (October 11)