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Recent hurricanes take toll on quarterly earnings

Lingering effects of storms hobbled manufacturing: Fed

After raging over the southern U.S. and Puerto Rico, remnants of hurricanes Harvey, Irma and Maria are now dampening corporate profits.

While the deadly storms slammed insurers who are now on the hook for billions of dollars in damaged property, many retailers, manufacturers and banks are also feeling the pain.

Over half of S&P 500 companies reporting third-quarter results in recent weeks, including Harley-Davidson, Delta Airlines and Costco, have said on conference calls with investors that the storms harmed their businesses to some degree, according to a Thomson Reuters analysis.

“We estimate the impact of the hurricanes accounted for approximately 1.5 to 2 percentage points of Harley-Davidson’s retail sales decline,” the motorcycle maker’s CFO, John Olin, told investors after reporting a decline in quarterly profit per share.

The hurricanes were part of the worst Atlantic hurricane season in over a decade, destroying or damaging homes, businesses and public infrastructure, killing over 200 people and paralysing normal economic activity.

Senior executives of at least 48 S&P 500 companies have told investors on quarterly conference calls that their businesses had been negatively affected by the storms. At least 12 companies, including U.S. Bancorp and Abbott Laboratories, also said their businesses were hurt by a September earthquake that killed 369 people in Mexico, a major market for U.S. firms.

Insurers hit

American International Group has estimated pretax losses of about $1 billion each from Harvey and Irma, up to $700 million from Maria and additional catastrophe losses, including Mexico’s earthquake, of about $150 million.

Travelers Cos Inc. said on Thursday it recorded $700 million in catastrophe losses from the destruction wrought by Hurricanes Harvey and Irma, although its quarterly profit fell less than Wall Street feared.

S&P 500 companies on average are expected to have increased their non-GAAP earnings per share by 4.2% in the third quarter, the slowest growth in a year, according to Thomson Reuters I/B/E/S.

Excluding insurers, which are expected to have suffered a 63.3% decline in quarterly profits, S&P 500 earnings are expected to be up 6.9%.

The lingering effects of Hurricanes Harvey and Irma hobbled activity at factories in September and blunted a rebound in U.S. industrial production, the Federal Reserve said on Tuesday.

Still, the storms have not stopped the stock market’s record advance. Up 15% in 2017, the benchmark S&P 500 is trading at 18 times expected earnings, a multiple not seen since 2002, according to Thomson Reuters Datastream.

The S&P 500 property and casualty index on Friday hit a record high, more than recovering from a sell-off that coincided with Harvey’s destruction. Many investors believe that insurers will raise premiums to make up for losses, and that those higher premiums will become permanent.

Dover Chief Executive Robert Livingston said overtime and other related expenses to get back up to speed had cost the manufacturing company as much as 2 cents per share in the quarter after Harvey forced it to close its Texas factories for four or five days.

Hand tool maker Snap-On said the storms cost it about $8 million in sales in Texas, Florida and Puerto Rico.

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Printable version | May 28, 2020 9:07:56 PM | https://www.thehindu.com/business/markets/recent-hurricanes-take-toll-on-quarterly-earnings/article19896841.ece

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