Will Zika Virus Have A Significant Impact On S&P 500 Earnings? by John Butters, FactSet

The past few weeks have seen an increase in concern about the spread of the Zika virus. Last Thursday, January 28, the World Health Organization (WHO) announced it would hold an emergency meeting on February 1 to discuss the spread of the virus.

According to a statement the organizations said that, “WHO Director-General, Margaret Chan, will convene an International Health Regulations Emergency Committee on Zika virus and observed increase in neurological disorders and neonatal malformations. The Committee will meet on Monday 1 February in Geneva to ascertain whether the outbreak constitutes a Public Health Emergency of International Concern…. In May 2015, Brazil reported its first case of Zika virus disease. Since then, the disease has spread within Brazil and to 22 other countries and territories in the region.”

Also on January 28, WHO Director-General, Margaret Chan, commented on Zika virus in a briefing to the Executive Board, saying, “The Zika virus was first isolated in 1947 from a monkey in the Zika forest of Uganda. Its historical home has been in a narrow equatorial belt stretching across Africa and into equatorial Asia. For decades, the disease, transmitted by the Aedes genus of mosquito, slumbered, affecting mainly monkeys. In humans, Zika occasionally caused a mild disease of low concern….The situation today is dramatically different. Last year, the virus was detected in the Americas, where it is now spreading explosively. As of today, cases have been reported in 23 countries and territories in the region. The level of alarm is extremely high. Arrival of the virus in some places has been associated with a steep increase in the birth of babies with abnormally small heads and in cases of Guillain-Barre syndrome. A causal relationship between Zika virus infection and birth malformations and neurological syndromes has not yet been established, but is strongly suspected. The possible links, only recently suspected, have rapidly changed the risk profile of Zika, from a mild threat to one of alarming proportions.”

What Are the Potential Implications of Zika Virus for Earnings for the S&P 500?

Given this level of concern, what are the implications for earnings for multinational companies in the S&P 500? How exposed are S&P 500 companies to the Latin America region?  Have companies in the S&P 500 been commenting on the spread of the Zika virus during their earnings conference calls for the fourth quarter? How concerned are S&P 500 companies about the crisis?

What is the Revenue Exposure of the S&P 500 to Latin America?

Based on the most recent FactSet Geographic Revenue Exposure data (which provides a structuralized and normalized presentation of corporate revenue by geography), companies in the S&P 500 in aggregate generate only about 4% of their revenues from the Latin America region. Of the ten sectors in the S&P 500, only two sectors have revenue exposure of 5% or more in aggregate to Latin America: Materials (8%) and Industrials (5%). Of the 61 industries in the S&P 500, only four industries have revenue exposure of more than 10% to Latin America in aggregate: Independent Power and Renewable Electricity Producers (35%), Energy Equipment & Services (13%), Leisure Products (12%), and Household Products (12%). Thus, revenue exposure to the Latin America region is fairly limited for the S&P 500, even at the sector and industry levels.

Zika Virus S&P 500 Earnings

Which S&P 500 Companies Have the Highest Revenue Exposure to Latin America?

However, there are individual companies in the S&P 500 index with significant revenue exposure to Latin America. The list below reflects the companies in the index with revenue exposure of 20% or more to Latin America (again based on FactSet Geographic Revenue Exposure data). Within the Latin America region, nine of the 12 companies listed below have the highest country-level revenue exposure (again, within Latin America) to Brazil.

Zika Virus S&P 500 Earnings

Have S&P 500 Companies Commented on Zika During Their Q4 Earnings Calls?

During each corporate earnings season, it is not unusual for companies to comment on domestic or international events that had an impact on their earnings and revenues for a given quarter, or may have an impact on earnings and revenues for future quarters. Have companies in the S&P 500 been commenting on the spread of the Zika virus during their earnings conference calls for the fourth quarter?

To answer this question, we searched for the term “Zika” in the conference call transcripts of the 199 S&P 500 companies that have conducted conference calls over the past two months (December 1 through January 29) to see how many companies mentioned the term. To date, American Airlines Group is the only S&P 500 company to comment on Zika.

“And as to the Zika virus, it’s obviously a little early to tell if it’ll have any impact on travel. We certainly can’t see anything in our data yet. But unlike some other viruses that have had short-term impacts on air travel in the past, Zika is not airborne, so there is not a danger of it being transmitted between passengers and so as of yet we haven’t seen a material change in bookings. For what it’s worth, it’d also be hard to tell very much, you’re looking at a place like Brazil where RASM is already down 40% trying to sort out an incremental decline because of the virus I think would be pretty hard for us to tell. But, to date we don’t see much impact” American Airlines said during their January 29 call.

According to a recent FactSet StreetAccount article, a few companies outside of the S&P 500 have stated they are looking into developing a vaccine for Zika.

FactSet StreetAccount reported on January 27 that “Companies that may be leveraged to Zika are still emerging, with few yet to disclose specifics of research programs around potential vaccines, diagnostics or therapeutics. To date, major vaccine manufacturers including GlaxoSmithKline (GSK.LN) and Sanofi (SAN.FP) have reportedly said they are exploring use of vaccine technologies in relation to Zika, as well as smaller biotechs including Inovio Pharmaceuticals (INO) and Intrexon (XON). The list is expected to grow given the urgent unmet need.”

Conclusion

At this point, it does not appear that the Zika virus will have a significant impact on revenues and earnings for companies in the S&P 500, given the limited level of revenue exposure to Latin America for the index and the small number of companies in the index that have provided any comments on the virus to date.  It will certainly bear watching over the next few weeks to see if more S&P 500 companies comment on the virus, as the remaining 300 companies in the index that have not reported results for Q4 2015 will do so over this time frame.

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