Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.
– U.S. economy
Far from fine. The United States is experiencing an outbreak of encouraging news. Retail sales jumped 7.5% in June, year-on-year – more than economists polled by Reuters expected. Separately on Thursday, the Labor Department said the total number of seasonally adjusted initial claims for unemployment insurance, while still alarmingly high, fell slightly.
Lenders are reporting that stimulus is keeping the worst at bay. Bank of America’s CEO Brian Moynihan said on Thursday that customer requests for payment assistance have fallen 98% since April, echoing other bank chiefs who say consumers seem surprisingly resilient.
The problem isn’t that this can’t last – though as Covid-19 cases surge in states like Georgia and Texas, it’s pretty clear it won’t. It’s that economic recovery, once glimpsed, is hard to give up. With each tiny improvement in the data, the prospect of more lockdowns gets more painful. And the political will to enforce them may get weaker. (By John Foley)
Pizza breath. What do Johnson & Johnson and Domino’s Pizza have in common? Both reported estimates-beating earnings on Thursday, though the pie maker kept the upward momentum going from the first three months of the year. A 33% drop in revenue from medical-device sales, meanwhile, left the healthcare conglomerate licking wounds first inflicted in the previous quarter.
But J&J consumer-health unit put in another good showing, not least Listerine mouthwash and digestive-health products. Perhaps part of the reason is all that extra pizza people have been eating in lockdown – same-store U.S. sales at Domino’s jumped 16% from last year’s second quarter, and it even opened a net 39 new outlets.
Granted, earnings are proving better than feared all round: of the 31 S&P companies that had reported earnings by Wednesday, 74% beat estimates, according to data from Refinitiv. Pepperoni and breath-freshening rinses go together in more ways than one. (By Antony Currie)
Crash-test dummies. So much for automakers’ hopes that the pandemic would boost cars as people shun public transport. On Thursday Reuters reported that Japan’s Nissan Motor, in which Paris-listed Renault holds a 43% stake, plans to cut production by 30% to 2.6 million vehicles between April and December to better cope with dampened demand. Nissan made 4.6 million vehicles in its last financial year, itself only about two-thirds of the Yokohama-based company’s total capacity.
Newish CEO Makoto Uchida wants to cut the latter down to 5.4 million cars “under normal operation” over the next three years as he seeks to save 300 billion yen ($2.8 billion) annually by closing factories in Spain and streamlining operations with Renault. Global car sales fell by nearly one-fifth in June, according to LMC Automotive, although China, a core Nissan market, recently bucked the trend with an increase. That will assuage automakers’ pain – but only a little. (By Christopher Thompson)
Brace position. Ending lockdowns hasn’t prompted the boost in plane travel airlines hoped for. Monthly passenger volumes at $10.5 billion Aeroports de Paris, which manages 24 airports worldwide including Paris-Charles de Gaulle and Orly, more than quadrupled in June to 2.8 million compared to May, as countries in Europe and Asia eased travel restrictions. But that still represented a bone-shuddering 88% decline from the same month a year earlier. Package holiday companies’ hopes of a boon in sun-starved tourists from northern Europe also appear to have been misplaced: excluding domestic flights in France, ADP reported a 95% yearly decline in continental traffic.
Little wonder that French President Emmanuel Macron has deferred selling down the state’s 51% stake. ADP shares, which rebounded by 31% since their nadir in March, remain down by nearly half this year, underperforming the Refinitiv Europe Airlines Price Return index. Macron’s delay may end up being indefinite. (By Christopher Thompson)
Redefining cost-cutting. Air India may allow some of its 11,000-plus employees to go on unpaid leave for up to five years to trim expenses during the pandemic, reports Mint newspaper. It’s a radical way to keep costs in check, but it might help the state-owned airline to secure a new owner. Prime Minister Narendra Modi’s government wants to wash its financial hands of the indebted, globe-trotting reminder of India’s inefficiencies.
Perversely, it might soon look more attractive. Indian airlines face losses of up to $4 billion this year, and the industry may consolidate into two or three players absent an urgent recapitalisation, aviation consultancy CAPA reckons. Air India’s recognisable brand and state-backing mean it’s likely to survive. But if balance sheets aren’t repaired, those that fly out of the crisis won’t be well-fuelled to connect the fifth-largest economy to the rest of the world. (By Una Galani)
Raising the bar. Heineken’s first-half net revenue fell 16% organically, the world’s second-biggest brewer said on Thursday. Danish rival Carlsberg managed a slightly better 12% decline, it said last week, thanks to a China bounce.
Yet it’s profitability that really separates the wheat from the, er, barley. Heineken’s operating profit more than halved in the first half while Carlsberg expects an organic decline of just 9%. Part of that is the Dutch brewer’s stronger, and higher-margin position in pubs and bars in Europe. Still, with punters returning to the boozer gradually, Heineken’s new Chief Executive Dolf van den Brink will need to boost revenue from home drinking, perhaps with a focus on the Heineken brand, which declined just 2.5%. He’ll also need to slash costs to get the profit taps flowing again. (By Dasha Afanasieva)