By Theo Francis and Thomas Gryta
The fast-spreading coronavirus has prompted even the biggest
U.S. companies to cut their spending and bolster their balance
sheets, proving once again how cash is king, especially in times of
After a decadelong U.S. economic expansion, not every company
has entered this crisis with the same cash cushion. Apple Inc.
ended the year with $247 billion in cash, securities and account
receivables, enough to run its operations for more than a year even
if it didn't cut costs or sell a single iPhone. Discount retailer
Dollar General Corp. had $240 million, enough for about four days,
in the unlikely event it had to shut its doors and didn't cut any
Dollar General said its business model generates significant
cash flow and has performed well in a variety of economic cycles,
and the company has access to lines of credit and good access to
the capital markets. Apple declined to comment.
Technology companies generally operate with more cash on hand
than retailers, which often have assets in unsold inventory. The
median amount of cash and other readily available assets to
continue to operate in an extreme scenario without revenue or cost
cutting was about 270 days at an S&P 500 tech firm, while the
median was closer to 60 days for retailers, according to a Wall
Street Journal's analysis.
As companies prepare to close their books on a tumultuous first
quarter, these measures can reveal how well-prepared they are for
the sudden financial stress. Economists expect the crisis to cost
the U.S. economy as much as $1.5 trillion in lost output over five
years, including a decline in gross domestic product of 4% to 10%
in the second quarter, a recent Journal survey of economists
"The investor mindset has shifted quickly to the balance sheet,"
said Ron Graziano, an accounting and tax analyst at Credit Suisse.
Sometimes factors that people don't follow during a booming market
suddenly become important. "The ones going into it with the bigger
cushion are better positioned to survive."
Delta Air Lines Inc. and Ford Motor Co. have stopped paying
dividends. Boeing Co. has tapped out its credit lines, while
General Electric Co. is cutting jobs. AT&T Inc., Intel Corp.
and Chevron Corp. have shelved share buybacks.
In many cases, the crunch on corporate finances comes after
years of cheap debt and easy credit that allowed companies to
expand while building a $10 trillion mountain of debt. AT&T,
following its 2018 takeover of Time Warner, had more than $150
billion in net debt at the end of 2019, though it has pledged to
pay down its borrowings.
At the same time, many companies used spare cash to repurchase
their own shares. In 2019, companies in the S&P 500 spent an
estimated $729 billion on buybacks, second only to the record $806
billion spent in 2018, according to S&P Dow Jones Indices.
President Trump and Democratic lawmakers placed restrictions on
share buybacks as part of the $2 trillion coronavirus stimulus
package expected to pass Wednesday to help industries wounded by
Cardinal Health Inc., which distributes medications and medical
supplies, had total liabilities of $40 billion at the end of
December, including $5.6 billion related to a proposed settlement
of state opioid litigation. That amounted to 40 times its
shareholders' equity, a common measure of the degree to which a
company's assets exceed its liabilities.
By contrast, the median debt-to-equity ratio for the health-care
companies in the S&P 500 was 1.2, according to a Wall Street
Journal analysis of S&P 500 financial data provided by
Calcbench. A spokeswoman for Cardinal Health had no immediate
Kimberly-Clark Corp., which makes Huggies diapers, Kleenex
tissue and other consumer products, reported liabilities 77 times
the size of its shareholders' equity at the end of 2019, the
Journal analysis found. The ratio for competitor Procter &
Gamble Co. was 1.4. Kimberly-Clark didn't respond to requests for
comment, and P&G had no comment.
Traditional debt-to-equity ratios probably understate the debt
burden many companies carry, Columbia University accounting
professor Shivaram Rajgopal said. That is because the assets of big
companies are increasingly intangible or difficult to monetize,
such as goodwill generated from mergers or intellectual property.
"In a crisis, that goes up in smoke," Prof. Rajgopal said.
Some companies that came into the year with an investment-grade
credit rating still only reported enough cash and other readily
available assets to operate for a short time in an extreme scenario
where their sales stalled and they didn't cut costs. They include
paint-maker Sherwin-Williams Co. (54 days) and home-improvement
chain Home Depot Inc. (17 days).
Sherwin-Williams doesn't carry cash but has $3.5 billion of
available liquidity, a spokesman said. Home Depot can adjust its
costs and believes its investment-grade credit rating is a better
measure of the retailer's ability to access capital when needed, a
These figures are rough estimates: They are calculated by
comparing a company's cash, marketable securities and accounts
receivable -- all of which tend to be easier to liquidate than such
assets as factories or inventory -- to an estimate of its cash
In reality, companies can -- and do -- cut expenses to meet
declining demand, and most could be expected to generate some
revenue in all but the most catastrophic downturns. Many U.S.
retailers have already taken steps to improve their liquidity.
Still, analysts say these and similar measures can serve as a
relative gauge of the resources available to companies in a
"You'd have to be Rip Van Winkle not to be cutting costs as
quickly and prudently as you could," said Matt Furman, spokesman
for electronics retailer Best Buy Co., which like many retailers
has halted stock buybacks and tapped a revolving credit line. Best
Buy is selling only online and via curbside pickup despite what it
described as a surge in demand.
If Apple didn't sell another iPhone or Mac computer, it could
operate for 492 days while continuing to make its products. Social
networking giant Facebook Inc. could keep its servers humming for
more than 21 months without selling a single ad. Facebook referred
questions about its cash burn to an update describing a surge in
its services that don't generate ad revenue.
Some of the companies that entered this crisis without big cash
reserves sent much of the cash they produced from operations to
shareholders, as dividends.
"Companies went into this situation with relatively limited cash
balances," said Torsten Slok, chief economist at Deutsche Bank
Securities. "It is rather unfortunate they had lower cash balances
and thereby became more vulnerable to this shock we have at the
Within industries, the dividend payout can vary. Casino operator
Las Vegas Sands Corp. paid 99% of the cash it generated from its
operations over the past year as a dividend, while rival MGM
Resorts International paid 15%.
"In recent years, we've been more focused on strengthening the
balance sheet rather than paying a higher dividend," Aaron Fischer,
MGM's chief strategy officer, said.
Sands' dividend payout appears higher than in recent years
because of an upfront payment to lease land for an expansion in
Singapore, reducing cash flow for the year, a Sands spokesman said.
Absent that transaction, he said dividends would have consumed
about 75% of the company's cash flow from operations.
The payout level depends on management's comfort with having
enough cash flow remaining along with its ability to access cash.
Altria Group Inc. paid out $6.1 billion in dividends in 2019,
amounting to 77% of incoming cash, and the tobacco giant intends to
make its next scheduled dividend payment in April, according to a
person familiar with the matter.
"Our dividend payout ratio is higher than most [consumer-product
companies] because of Altria's ability to generate cash," an Altria
The Marlboro maker typically hits its highest peak of cash for
the year in the first quarter, and has a $3 billion line of credit,
said Chief Financial Officer Billy Gifford, who is acting CEO while
the company's top executive is ill with the coronavirus. "We've
been in discussions with banks," he said. "We feel good about
Jennifer Maloney contributed to this article.
Write to Theo Francis at firstname.lastname@example.org and Thomas Gryta
(END) Dow Jones Newswires
March 25, 2020 12:32 ET (16:32 GMT)
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