Spring was bleak at auto supplier BorgWarner, when it lost $100 million in its second quarter of 2020.
But the third quarter became a different story, when the Auburn Hills-based company bounced back to earn $100 million-plus. Now it forecasts stability in the final quarter of the year — but only if the resurgent pandemic doesn’t trigger further economic damage.
Many Michigan companies are passengers on a similar dizzying revenue ride as they continue to navigate the COVID-19 crisis, according to a Bridge Michigan review of 2020 financial results for more than 30 of the state’s publicly traded companies.
Bridge found a common—but not universal—pattern resulting from the pandemic. At many companies, revenue and profit dropped sharply late in the first quarter, cratered completely in Q2, then rebounded in Q3—but not enough to make up for the steep losses earlier in the year.
Ford, GM, Dow, Whirlpool, Stryker, Wolverine Worldwide, Gentex, Lear and others followed this path.
The question is whether the Q2 freefall was a one-and-done bungee jump that returned these companies to safe footing or a rollercoaster with more twists and turns to come.
At BorgWarner, earnings declined 20 percent in Q1 compared with the same period in 2019, then nosedived more than 150 percent in Q2 before bouncing back to finish Q3 down about 40 percent. In total, net earnings for the first nine months of the year reached $142 million—73 percent less than in 2019. \
- Forecasts say Michigan’s economy will still be recovering in 2023
- ‘There is no playbook’ for Michigan’s businesses to navigate COVID-19
- Michigan business snapshot of Q2 earnings shows losses — and a few wins
BorgWarner executives anticipate continued stability in Q4 and expect the company to end 2020 with a 13 percent decline in organic revenue for the full year — with one ominous caveat.
“It's important to note that the market environment is still volatile, with the risk of future disruptions arising from COVID-19,” CEO Frederic Lissalde told analysts on the company’s recent Q3 earnings call.
“As you've seen [with] the latest lockdown announcement in Europe, the risk level . . . has elevated, and we're monitoring the situation very closely.”
On and off the job
As the economy tanked, Michigan companies furloughed hundreds of thousands of workers to reduce the financial pressure on their operations. Statewide, nearly 1 million more people were out of work in April than in February, according to the state Department of Technology, Management and Budget.
By September, most had returned to work—but there were still 343,894 more people unemployed than in February and another 109,992 had left the workforce altogether. The unemployment rate stalled at about 8.5 percent throughout the third quarter, suggesting the recovery had slowed.
Penske Automotive Group, which is headquartered in Bloomfield Hills, furloughed about 15,000 employees worldwide in March — 54 percent of its global workforce — then watched earnings decline more than 60 percent in the second quarter.
In Q3, sales rebounded to 2019 levels and Penske delivered the most profitable quarter in its history.
The company paid down debt, reinstated its dividend, repurchased more than 1 million shares of stock, and called back nearly all of its furloughed workers. It also eliminated approximately 3,700 jobs, reducing its global workforce by 14 percent.
On Penske’s Q3 earnings call, CEO Roger Penske said the company is moving ahead with plans to expand its SuperCenter dealership network from 16 to 22 locations.
“We'll open up the Nottingham [United Kingdom] store in December and Brunswick, New Jersey, will open early in Q1 2021,” Penske said. We forecast the SuperCenters will retail 80,000 vehicles in 2021 and 100,000 vehicles in 2022.”
Growing digital business also plays a role at Penske.
“We also continue to grow, expand and enhance our digital footprint including the introduction of new tools and technologies,” Penske said. “Using our digital signing room, many customers can complete a transaction 100 percent online.”
Some Michigan companies have defied the trend and thrived in 2020. For example, Troy-based Flagstar Bancorp set a company record with $2.03 in earnings per share (EPS). Then it broke the record in Q3 with EPS of $3.88.
At Livonia-based Masco, whose brands include Behr paint and Delta faucets, sales were stable through the first nine months of the year and earnings more than doubled from $517 million in 2019 to $1.07 billion.
DTE Energy revenue increased 21 percent for the first nine months of 2020 and EPS grew 15 percent.
- Michigan coronavirus unemployment, map, curve, COVID-19 updates
- Dashboard: Michigan coronavirus testing numbers, trends, COVID-19 data
- Been exposed to COVID-19? A new Michigan app will let you know.
Grand Rapids-based SpartanNash operates 156 grocery stores and distributes grocery products in the Americas, Europe, and the Middle East. In Q3, as the pandemic pushed people to eat at home and shop online, SpartanNash same-store sales increased more than 10 percent and e-commerce sales climbed 175 percent.
UFP Industries, also headquartered in Grand Rapids, manufactures and distributes lumber and building and home improvement products. It set sales and earnings records all three quarters of 2020. For the full nine months, year-over-year sales increased 10 percent compared with 2019 and net earnings increased more than 30 percent.
“So far this year,” said UFP CEO Matthew Missad, “we faced a pandemic, shutdown orders that disrupted economic activity, a record increase in lumber pricing, supply constraints, wildfires, hurricanes and rail shortages.
“Despite that, our teams worked diligently to address shifting customer demands, managed inventory wisely, and delivered record results.”
Malls still struggle
Taubman Centers, which owns and manages malls in the United States and Asia, lost $30 million in Q3, compared with net income of $216 million in the same period last year. A retail shakeout among mall stores, from specialty retailers to department stores, is apparent among the two-dozen bankruptcies so far this year.
Most of Taubman’s U.S. properties closed on March 19 due to COVID-19, and all reopened by June 30. To manage through the crisis, Taubman cut capital spending and operating expenses and suspended its dividend in the second and third quarters.
“Operations across our portfolio are steadily improving, despite the continuing impact of the pandemic,” CEO Robert Taubman said in a recent statement. “All of our properties are open and operating and nearly 94 percent of our U.S. tenants have reopened. Since May, traffic, sales, and collections have consistently improved.”
On Nov. 16, it was announced that Simon Property Group will acquire a controlling stake in Taubman for $43 per share—about 18 percent less than Simon’s earlier offer of $52.50. The two firms agreed to merge before the coronavirus hit the U.S., but Simon pulled out of the deal claiming, “Taubman’s largely upscale properties weren’t performing as well as those of its peers because of a slowdown in tourism and luxury spending,” according to Forbes.
Other reports suggested the two companies’ poor financial performance led to the deal’s resurrection.
“In its most recently reported quarter, Taubman suffered a 16 percent year-over-year decline in its total revenue. . . . Simon's recent declines are even sharper. In its latest published quarter, the company's top line eroded by 25 percent,” The Motley Fool reported.
Staffing is another sector struggling to get back on its feet. COVID-19 has impacted demand at Troy-based Kelly Services, where revenue declined about 9 percent in Q1, 29 percent in Q2, and 18 percent in Q3. For the full nine months, Kelly revenue was down $750 million and the company lost $103 million.
Demand for permanent employees was particularly weak. “Permanent placement fees were down 40 percent year-over-year as the impact of economic uncertainty has depressed full-time hiring in all segments,” said CFO Olivier Thirot.