‘There is no playbook’ for Michigan’s businesses to navigate COVID-19

Ford Motor Co. reported a net loss of $2 billion in the first quarter, when it also shifted production to coronavirus medical supply needs. About 90 paid UAW volunteers have assembled more than 10,000 powered air-purifying respirators at Ford’s Vreeland facility near Flat Rock. (Photo courtesy of Ford Motor Co.)

One statistic that does not show up in CMS Energy’s financial statement points to the unmapped road Michigan businesses are traveling due to the global pandemic.

“At this time, we've experienced zero fatalities,” CEO Patti Poppe said during the utility’s first-quarter earnings call on April 27.

She went on to cite other numbers: 11 positive cases for COVID-19 among 8,000 workers. Seven employees returned to work.

Poppe’s bottom line: “Our social distancing is working.”

It is an unprecedented earnings season for Michigan’s public companies. A look by Bridge Magazine at first-quarter financial results, announcements and analyst calls for 20 companies across many sectors shows the first cracks in business performance from the COVID-19 pandemic. 

 

In most cases, CEOs say those cracks are growing deeper and wider. The reports also detail companies’ vast, varied and rapid responses to a global economic downturn whose magnitude and duration, top business leaders said, cannot be guessed.

Many companies in the state stopped providing investors with guidance regarding future financial performance because they can’t predict what’s coming next.

“There is no playbook to navigate the environment we face,” said J.B. Brown, CEO of Detroit-based Ally Financial. 

Since early March, Michigan companies have moved legions of employees from offices to working at home, furloughed hundreds of thousands of workers, shut down assembly lines and businesses. At the same time, they enacted safety protocols, managed perilous supply chains, ramped up online selling and digital operations, cut costs, expanded charitable activity. Many amassed cash to ride out the storm.

Domino’s Pizza CEO Richard Allison described his company as “a 60-year-old brand that has rewritten most of our standard operating procedures in the last six weeks.” 

Ford Motor Co. CEO Jim Hackett said the automaker had been preparing for a recession before the pandemic struck, but never anticipated the global economy shutting off like a light switch.

“In all sincerity . . .  we just never imagined the economy turning off,” Hackett said on the company’s April 28 analyst call.

“I never had a business plan that was called ‘pandemic.’ ”

Signs of danger

Zeeland-based Gentex Corp. manufactures auto-dimming mirrors and other technology for most of the world’s automakers. The company was on track to meet earnings expectations for the first 10 weeks of the first quarter ended March 30, then COVID-19 shut down the auto industry in parts of Asia, Europe and North America. Gentex sales fell $40 million in the last two weeks of March.

This amounted to a modest 3 percent decline in the company’s quarterly results, but it was just the beginning. IHS Markit estimates light vehicle sales will drop 22 percent worldwide in 2020, and Gentex expects its net sales to decline as much as 15 percent for the full year.

What happened at Gentex is a common pattern across industry sectors—revenue tanked in March, losses accelerated in April, and corporate leaders say they can’t predict when economic recovery will begin.

Ford reported a net loss of $2 billion in the first quarter and projects $5 billion in losses by the end of June. At CMS Energy, commercial and industrial electricity use is down 20 percent to 25  percent. Dow expects second-quarter sales to drop about 25  percent.

Livonia-based Masco, whose brands include Behr paint and Delta faucets, delivered 4 percent higher sales early this year,  but expects sales to fall as much as 25 percent through June. It will be worse if stay-at-home orders are prolonged or expanded. 

“This [forecast] assumes that in the United States and Europe our closed facilities begin reopening throughout the month of May and that there are no further restrictions enacted in additional states or geographies,” said Masco CEO Keith Allman.

Stryker, a medical-device company based in Kalamazoo, generates up to half its revenue from elective procedures that are being postponed during the pandemic. “For Q1, we achieved organic sales growth of 2.4 percent, reflecting strong momentum through the first two months of the quarter and into March, followed by a marked slowdown tied principally to a deferral in elective procedures,” said Stryker CEO Kevin Lobo. 

In April, Stryker’s sales were down 35 percent to 40 percent and the company, like many others, withdrew its earnings guidance because of uncertainty over the scope and duration of the pandemic. One sign of hope: Lobo said the company is “encouraged by the planned gradual resumption of elective surgeries in the U.S. and abroad.”

At Ally Financial, car loan applications were up about 5 percent in January and February, then more than 20 states enacted stay-at-home orders that stopped or restricted dealer sales. Ally’s loan applications dropped by more than half in late March. 

The company recorded a $903 million expense in the first quarter to cover projected future loan losses due to COVID-19—more than triple the expense taken for anticipated bad loans year earlier. As a result, Ally lost $319 million in the first quarter, compared with net income of $374 million in the same period last year.

Investors reacted with concern. Ally shares dropped 3.25 percent the day its earnings were announced.

 

Survival mode 

Michigan companies, like their peers nationwide, are focused on costs and liquidity. They  tapped their available credit to amass cash, suspended share buybacks to preserve resources, and cut capital expenditures, salaries and discretionary spending.

To boost revenue, some created or expanded high-tech, no-touch ways to sell products and services in the age of social distancing. Strategies include new customer apps, more robust digital sales channels, and no-contact pizza delivery and car sales.

Ford borrowed $15 billion to increase cash on hand from $22 billion to $34 billion in the first quarter and says that is enough liquidity to carry the company through 2020. “We're pulling every appropriate lever to protect our core business, strengthen the balance sheet,” Hackett said.

Ford chief operating officer James Farley Jr. said the company is applying lessons learned in China in the early days of the pandemic. 

“Early on in China, we focused on business continuity,” he said. “We mapped our suppliers for the liquidity in the supply chain. We created a unique logistics portal to track our supply chain. We secured air freight capacity to deliver critical safety equipment to our team in China . . . and to ensure supply of critical parts to regions like North America.”

When dealerships in China were forced to close, Farley said, Ford enhanced online sales channels. “In China today, over a third of our sales are direct online,” he said. “We increased doorstep delivery of sanitized vehicles. . . . We schedule remote service and vehicle pickup for maintenance, to make it easy for customers.”

Prescient preparation

A few years ago, Troy-based Flagstar Bank prepared for a possible pandemic as part of its business continuity planning—and soon afterward allocated laptops to most employees so they could be deployed to work from home. 

In mid-March this year, 2,500 Flagstar employees participated in a remote-work test, and the company subsequently expanded its network and connection capacity to accommodate an additional 10,000 users. Ten days later, Gov. Gretchen Whitmer enacted the state’s stay-at-home order.

“Today, over 80 percent of our employees are working remotely and . . .  productivity has not dropped,” said Flagstar CEO Alessandro DiNello. “In fact, in the last two weeks of the month, we processed over $2 billion of mortgage loans, increased warehouse balances by over $1.5 billion, worked out arrangements with every commercial customer seeking a deferral, accepted thousands of requests for mortgage forbearance, and built a new technology platform literally overnight to launch the [Small Business Administration’s] Paycheck Protection Program.”

Flagstar opened its platform for the SBA loan program 36 hours after the federal government released guidelines. “We took and processed over 3,000 applications for $400 million in loans,” DiNello said. “Remarkably, all these processes were performed and managed remotely.”

Pizza, paint and Eggo waffles

Consumers sheltering in place devastated markets for many companies in Q1, but it boosted revenue for others:

  • Pizza, it appears, is pandemic food. Domino’s global sales increased 4.4 percent in Q1, then spiked more than 10 percent in the first four weeks of Q2. The company is hiring 10,000 people in the United States to keep up with demand.
  • Homebound residents tackling DIY projects boosted sales of Masco’s Behr paint.
  • Stocking up on staples and eating at home increased demand for low-end refrigerators and freezers from Whirlpool and breakfast foods from Kellogg. Sales of Eggo waffles spiked 45 percent in March.
  • Perrigo Co. in Allegan manufactures private-label and branded consumer products including pain relievers and cold, cough and allergy medicine — which consumers stockpiled. “We estimate that customer reactions to COVID-19 added about $90 million to $110 million to consolidated net sales in the quarter,” said CEO Murray Kessler.
  • Germ-fighting spurred demand for soap and sanitizer pumps and other packaging products from TriMas, headquartered in Bloomfield Hills. The company is increasing global production capacity because it believes the heightened focus on hygiene is here to stay.

Companies are challenged to determine which virus-inspired consumer behaviors are transitory reactions and which are structural changes that should be factored into long-term strategies. 

They also face more fundamental questions.

“How fast will businesses bounce back?” CMS’s chief executive Poppe asked. “How soon will people gather in public spaces? How quickly will manufacturers be able to start making non-essential goods again? Will the government stimulus help so that the small businesses can come back after this? 

“At this point, there's just too many unknowns.”

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Comments

Revere
Thu, 05/07/2020 - 8:22am

The playbook is: Open now, ignore the tyrant, if you need protection from the tyrants office and the sherriff is not available, call the Michigan Militia.

Anonymous
Fri, 05/08/2020 - 4:00am

For threat and intimidation, like they did at the Trump rally, I mean legislative protest? Or are they all guns no bullets? Make up your mind. What exactly does the Michigan Militia do other than intimidate Americans, threaten legislators? Do they file lawsuits, pay legal fees or do they kill people in unfortunate hunting accidents, house fires? Do they imprison people? Please, tell us exactly how it works.

Are you in the Michigan Militia? Do you happen to know with your connections to gun shops and ways of circumventing the laws? Are you trading in weapons that were used in crimes, taking advantage of gun law loopholes, helping to write those loopholes? Doesn't it work like a mafia where businesses and professionals in northern Michigan pay them for work, "side jobs", for "protection" and favors? Maybe this is how certain politicians get campaign funds? Or is it just a group of guys who hate their wives or parents and get together to drink beer, shoot their AK47s, then sit around under a confederate flag farting and saying prayers to Trump, pissed that a woman is telling them what to do? What does the Michigan Militia do that the sheriffs or state police or national guard won't?

Bridge, these would be great topics to explore, fascinating for your readers.

Revere
Sat, 05/09/2020 - 9:20am

Anonymous,
I read your post three times. I can't seem to find any substance and the entire thing seems to translate to some combination between a cry for help and a scream of "I HAVE TDS! I HAVE TDS! TELL ME HOW TO THINK!" and also maybe a prayer to your CNN/FAUX NEWS gods.

You sound like a very deranged person. You should isolate yourself, with or without coronavirus...

duane
Thu, 05/07/2020 - 10:01am

The way the article reads, Michigan businesses [including those of largest size and reach] are left on their own. We read nothing about the Governor or any agency even reaching out to ask businesses what will likely need to be addressed in the future, immediate to extended.
It seems where businesses work at planning for the future, the Governor simply waits until she has to react and listens to whoever is within reach. I wonder if Governor Whitmer will have even one of these business leaders near enough to consider asking, since she doesn't seem to have chartered a team of business [large and small] to start developing a coordinate effort for Michigan's economic future [immediate and longer].

I disagree, but?
Fri, 05/08/2020 - 4:07am

Kind of like when Trump put his son-in-law Jared Kushner in charge of replenishing our national strategic supplies long after we were hit by a pandemic? Then Jared gathered a group of young volunteers and delegated them with the task of piecing together urgently needed supplies using their personal email accounts to do government business and tipping off their friends about the business opportunities where they could gouge American healthcare workers with over-priced PPE? Is that the extreme level incompetence and self-dealing you mean?

duane
Fri, 05/08/2020 - 10:57am

No, one was about raising the visibility of an existing logistic system. Michigan's is about how the state is entwined in our economy, from how it is regulated to the revenues it draws on from the system and has no interested in being part of the planning for get it producing again.

I can see it now, the Governor calls on employers to make the economy sacrifices/investments to get the economy back on track [with no help from the state] and once it is up and running she demands the taxes no matter the hardship the employers have had to make. Governor Whitmer [D] could act much like how Governor Cuomo [D], put out a call for help the of medical volunteers from across the country, but now that they got NY have got us through the problem, he demands taxes on all they earned [in NY and all in their home state].
Your comparison is a weak one, but you don't have much to work with.

middle of the mit
Sun, 05/10/2020 - 8:18pm

If business only works to plan for the future.....why do they look to the Governor to help them find out what they need to do? Shouldn't they be looking to the same people that the Governor is to find out how they can open up with the least amount of contractions of a deadly world wide pandemic? As opposed to saying that they NEED TO OPEN WITH LIABILITY PROTECTIONS FROM THE FEDS?

What's wrong?

Don't want to be personally responsible for getting you or your customers getting your employees or your customers sick from your employees and customers that think this virus is fake?

Personal responsibility sucks doesn't it?

Isn't that what Tort reform is all about?

Screw the customer and the employee!

#LLC!

Can you imagine what this country would look like if we didn't serve just the Wealthy?

It might be even more prosperous.....

duane
Mon, 05/11/2020 - 10:08pm

middle,
Again you fail to think pass your partisan political stereotyping. You seem to fail to appreciate that simply going to court to defend oneself is costly, it can put an employer out of business even when they win in court.
All a plaintiff has to do is file a complaint, but whomever the complaint is filed against must hire a lawyer, develop a defense, go to court, and be prepared to defend themselves [for if they fail to do any/all of that the judge can rule against them forcing them to pay whatever the plaintiff requests]. All a plaintiff has to do is file the complaint, they have no risk of cost, watch the attorney ads, 'you only pay if we win'.
The complaint doesn’t even have to do more then claim there was a person infected with Covid 19 at that facility some time prior to the plaintiff visiting the same facility and that has put them at risk and caused them undue stress.
Where I am interested in learning the risks to all sides, you only want private employers to be sued and fail.

Bow to the Queen
Thu, 05/07/2020 - 10:03am

Business owners: don't worry bout losing your livelihoods, Queen Whitmer will tell you how you're supposed to be running your business. And if you don't obey, her lapdog henchwoman over in the Attorney Generals office will revoke your business license, prosecute you into complete bankruptcy and probably throw you in jail.

Anonymous
Fri, 05/08/2020 - 4:11am

Bow wow, are you high or just immature?

LOL
Thu, 05/07/2020 - 10:05am

Thanks, Trump for shutting the economy, you, TYRANT!

Anonymous
Thu, 05/07/2020 - 10:06am

So it's still a good time to buy stock?

Sadly
Thu, 05/07/2020 - 10:11am

After a year and all the bailouts, these businesses will be buying back their stock, issuing themselves billions of dollars in bonuses, and leaving taxpayers empty-handed with pollution to clean. Socialism for the rich, capitalism for the working poor.

duane
Sun, 05/10/2020 - 12:03pm

Sadly, Sadly does even read all the Bridge articles otherwise he would have learned that while China's had a visible change in pollution when their cities were shutdown from Covid 19 while not even Detroit or any other cities showed any visible change when Governor Whitmer locked down Michigan. That shows us how for decades Michigan businesses have been improving their operations to the point of eliminating particulate pollution.
Sadly, Sadly is so locked into partisan rhetoric that they can see and accept reality. We are in a dynamic world and those that cling to partisan slogans in place of thinking. That is what is holding back Michigan from achieving our hopes and dreams.

Paul Jordan
Thu, 05/07/2020 - 10:23am

Three comments: First of all, Flagstar Bank's preparations illustrate the kind of effect that similar reality-oriented planning could have had on the country as a whole, if only we had had somebody as competent as CEO Alessandro DiNello at the head of the federal government.

Secondly, for decades we ordinary folks have been told by financial gurus that we should always have six months' expenses in savings. What proportion of corporations have followed this sound advise? Corporations--like too many individuals--seem to judge their well-being by how much they can borrow, rather on the health of their balance sheet. As Warren Buffett has said, this is a time that will separate the well-managed companies from the zombies.

Finally, businesses might want to consider asking employees who are financially secure to volunteer to temporarily accept lower take-home pay for the commitment to repay the difference (with interest) once financial stability has been restored.

Hopeful
Fri, 05/08/2020 - 4:10am

Great comments. I hope you and DiNello get a post in the Biden administration.

Anonymous
Sat, 05/09/2020 - 9:31am

Wouldn't it be great if we had someone at the top who just ignored separation of powers, checks and balances, and oversight? That way they could just get things done! If someone wasn't doing what that person wanted, they could invoke a law claiming it was needed for defense or production or something and then order people to do what they wanted. National planning for a better social society, we could call it.

Hold on while I go deeper into the The 25-point Program of the NSDAP (sometimes called the Nazi Party)... personal enrichment due to the virus must be regarded as a crime against the nation... We demand nationalization of businesses which have been up to the present formed into companies .... we demand an expansion on a large scale of old age welfare and health insurance welfare... we demand legal opposition to known lies and their promulgation through the press....

Or maybe you prefer The Manifesto of the Italian Fasci of Combat (which was Benito Mussolini's movement)... The formation of a national council of experts to run the nation... a minimum wage... support for labor unions... factories are to be nationalized... a strong progressive tax....

Arjay
Thu, 05/07/2020 - 10:28am

I'll bet that Behr paint sales did not increase in Michigan, thanks to the governor who prohibited Home Depot from selling paint. You can buy a sponge at HD, but you can't buy paint. And the reason for that is not to protect your health, but for the democrats to say that they have control over you. Much of the shutdown is done for no reason at all, other than one person saying "I have the power". You can buy lottery tickets and liquor, but you can't buy paint. How stupid is that?

Jr
Fri, 05/08/2020 - 4:13am

You can buy Behr paint online anywhere in the country.

Ha Ha
Fri, 05/08/2020 - 4:16am

Arjay, I painted my whole house in the last two months while you lazy snowflakes where here whining.

Trump is a tyrant
Thu, 05/07/2020 - 1:24pm

"‘There is no playbook’ for Michigan’s businesses to navigate COVID-19"??? Um, yes there is! It's a 17 page set of guidelines issued by the CDC that Trump refuses to release.

One case and it...
Thu, 05/07/2020 - 2:32pm

The questions posed at the end of the article are the kind the CDC addresses in their guidelines that Trump won't release. He's afraid that they are too restrictive, especially knowing that the states opening now are not following Trump's previous guidelines. It's bad optics for the president. Isn't that how the problem got so bad in the first place? Trump was too worried that his great economy would be hurt if he followed the advice of scientists. So he put Jared in charge instead. We're back to herd immunity BS.

Missing Obama
Thu, 05/07/2020 - 2:35pm

When congress passed Obamacare, the GOP said their would be death panels for the elderly, but their weren't. Meanwhile the GOP and Trump have given tax cuts to the rich, tried to undermine Obamacare by not enforcing the mandates, and NOW saying it's okay for old people to die, survival of the fittest. GOP Pro Life? Not at all. Just evil greed to the core.

Enough
Fri, 05/08/2020 - 4:25am

Missing, you make great points. Republicans only care about getting rich and winning elections so they can get richer. Meanwhile THEY brought us the DEATH PANELS. They don't care if the weaker people among us die. They intentionally refuse to wear masks and not social distance, even as we do reopen the economy. It IS evil behavior. Why won't Trump release the CDC guidelines and let the states decide which they want to apply, given their own set of circumstances? Why did we spend our tax dollars on the research, only not to have it available to all the 50 states?

duane
Fri, 05/08/2020 - 1:17pm

Missing,
My preference is to die when I am 'old'.
As for the 'death panels' that was what Obama Care [ACA] was trying to install, establishing age as a criteria [much like Canada does] for denying treatment [with Obama Care to minimize spending on equipment [such as dialysis machines, joint replacements, specialize treatments [neuro, heart, optic] they would set a maximum age at which the ACA would not pay for the treatments. Obama Care would also restrict the investment in diagnostic equipment [CT, MRI, etc.] much as Canada's and with a delay in something such as a brain tumor a matter of months and distance can in affect be a death sentence. Dr. Ezekial Emanuel, one of the prime designer of ObamaCare, said he "hoped he died at 75", he questioned whether there was sufficient quality of life after 75. He was a strong proponent of denying costly treatments for those over 75.

Revere
Sat, 05/09/2020 - 9:24am

"Missing Obama" - LOL. This name alone outs you as a fragile little snowflake who cannot think for yourself.
I was deceived into voting for that puppet once - ONCE - But I wasn't fooled the second time.
You need to stop drinking whatever poison it is that you have been drinking and wake up - Learn to think for yourself.
BTW, I found a great way to trigger those still loving that waste of skin named Barry - Did you know that his 'wife', Michelle, is actually Michael Robinson, post-sex-change?
Now queue the rage response :D :D :D