Investors, beware. Companies see a whole lot of future COVID risks

Cancellations of sports leagues across the U.S. to prevent the spread of COVID-19 posed an obvious threat to Dick’s Sporting Goods’ sales. But the Findlay-based retailer was also worried about how professional teams and athletes would handle the new coronavirus.

If these high-profile figures were careless, it could hurt the retailer’s bottom line, the company disclosed in a recent regulatory filing.

“Our sales could be negatively impacted by negative publicity or perception involving professional sports leagues or individual teams in relation to decisions made by them relating to response to the COVID-19 pandemic,” read the company’s quarterly report, posted June 5.

For the past 4.5 months, public companies have had to disclose to investors how they think COVID-19 could affect their businesses.

In every quarterly and annual report, businesses that sell shares on markets like the New York Stock Exchange or the Nasdaq must lay out potential “risk factors” — anything that could negatively impact profits or prevent them from meeting their financial goals. On March 25, the U.S. Securities and Exchange Commission issued guidance for how companies should talk about

COVID-19 risks.

The usual suspects have arisen: potential negative impacts of mandatory shutdowns, workplace outbreaks of the virus, sudden changes in demand and potential supply chain hits due to business relationships in highly infected areas.

For some companies, like United Natural Foods, a Rhode Island-based food wholesaler that operates a distribution center in New Stanton, the COVID risks aren’t quite as intuitive. “Pantry loading” by nervous grocery shoppers during the March shutdowns significantly increased demand, the company said.

But the fuller picture was more complicated for the food supplier. On one hand, the lifting of stay-athome orders might suddenly drop demand and reduce profits. On the other, the company had already incurred increased costs for labor and sanitation practices, and the business was seeing supply shortages due to the spike in bulk shopping.

With a rush on certain products emptying shelves and the company finding some items hard to replace, United Natural Foods said the situation could lead to higher costs, fees or even penalties.

For banks, the risk factors were similarly tied up with opportunities. With declining interest rates, many banks have seen reduced profitability. But they’ve also been at the forefront of government and other efforts to keep the economy afloat.

WesBanco Inc., a bank holding company based in Wheeling, W.Va., unveiled a program to help COVID19-impacted customers with a 90-day deferral of loan principal and/or interest payments if they met certain criteria. WesBanco disclosed if too many customers applied, it could run low on cash.

“In addition, if these deferrals are not effective in mitigating the effect of COVID-19 on our customers, it may adversely affect our business and results of operations more substantially over a longer period of time,” WesBanco said in its first-quarter report.

The rise of the pandemic in early spring coincided with typical filing dates for yearly and quarterly reports, and companies initially struggled to report how the coronavirus could affect future performance.

The stakes are high: Companies that fail to describe how risk factors like the virus have impacted them or disclose relevant business ties from affected regions could face lawsuits from disgruntled investors.

Early on, many lumped in the new coronavirus with other unforeseeable events, as food giant Kraft Heinz Co. did in its annual report for 2019, released Feb. 14.

“Factors that are hard to predict or beyond our control, such as weather, raw material shortages, natural disasters, fires or explosions, political unrest, terrorism, generalized labor unrest, or health pandemics, such as the new coronavirus that originated in China, could damage or disrupt our operations or our suppliers’, comanufacturers’ or distributors’ operations,” the filing read.

Once the pandemic began to hit the U.S. in full force, most companies listed COVID-19-related impacts as their primary risks, and more specific potential impacts began to emerge.

Some businesses that saw the effects of the virus relatively early still couldn’t get ahead of it.

Allegheny Technologies Inc., a Downtown-based producer of specialty metals, primarily serves the aerospace and defense industries. It has a jointly owned steel plant in Shanghai, and in early February, company officials said China’s restrictions of movement “had a small impact on some of our production” that was expected to subside by Feb. 10.

By March, the company had instituted pay cuts for most salaried staff, including a 20% reduction for executive board members, offered a voluntary retirement program and reduced 401(k) benefits to nearly all employees. By June, ATI had severance obligations for the elimination of 550 positions and reported a loss of $422.6 million for the second quarter of 2020.