Cash Is King --- Never More So Than Now

Al Root Coronavirus BA JBLU KHC Boeing Kraft Heinz JetBlue Airways Gordon Haskett Brian Klock Jeff Farmer Kraft Heinz Sen. Mitt Romney Corporate/Industrial News Corporate Financial Difficulty BA JBLU N/CNW N/DJN N/WER Barrons.com Barrons Blogs Wires DJIA Dow Jones Industrial Average S&P 500 SPX CODES_REVIEWED Coronavirus Economy and Policy author Al Root author|Al Root topicid 8578 name Al Root extractedtext Al Root rank 1 codetype author code al_root nameformat surname_first author Al Root id Al Root barrons_display_subject BARCORONA barrons_display_subject|BARCORONA codetype BARRONS_DISPLAY_SUBJECT canbedisplaysubject true value BARCORONA source MANUAL status modified name Coronavirus code BARCORONA co HINZC co|HINZC symbol KHC country US codetype co displayname Kraft Heinz extractedtext Kraft Heinz source MANUAL code khc name Kraft Heinz significance prominent exchange U.S.: Nasdaq exchangeisocode XNAS chartingsymbol STOCK/US/XNAS/KHC fcode HINZC status modified onlinesignificance prominent co JETBLU co|JETBLU symbol JBLU country US codetype co displayname JetBlue Airways extractedtext JetBlue Airways source MANUAL code jblu name JetBlue Airways significance prominent exchange U.S.: Nasdaq exchangeisocode XNAS chartingsymbol STOCK/US/XNAS/JBLU fcode JETBLU status modified onlinesignificance prominent co BOEING co|BOEING symbol BA country US codetype co displayname Boeing extractedtext Boeing source MANUAL code ba name Boeing significance prominent exchange U.S.: NYSE exchangeisocode XNYS chartingsymbol STOCK/US/XNYS/BA fcode BOEING status modified onlinesignificance prominent company BA company|BA name Boeing significance PROMINENT company KHC company|KHC name Kraft Heinz significance PROMINENT company JBLU company|JBLU name JetBlue Airways significance PROMINENT djn BA djn|BA significance passing name BA why occur source FACTIVA fcode BA codetype djn code ba onlinesignificance passing-mention djn JBLU djn|JBLU significance passing name JBLU why occur source FACTIVA fcode JBLU codetype djn code jblu onlinesignificance passing-mention djn N/CNW djn|N/CNW name N/CNW why lineage source FACTIVA fcode N/CNW codetype djn code n_cnw djn N/DJN djn|N/DJN codetype djn value N/DJN source DJN-CONTROL status modified inactivebydefault true name N/DJN code n_djn djn N/WER djn|N/WER codetype djn value N/WER source DJN-CONTROL status modified inactivebydefault true name N/WER code n_wer editorial-seo-id cash-flow-spending-bill-pay-earnings-gift-cards-51584550739 editorial-seo-id|cash-flow-spending-bill-pay-earnings-gift-cards-51584550739 first_publish_headline Cash Flow Is Key Right Now for Businesses Big and Small first_publish_headline|Cash Flow Is Key Right Now for Businesses Big and Small flow NWREGULAR flow|NWREGULAR codetype FLOW value NWREGULAR source MANUAL status modified name Wires code NWREGULAR flow Barrons.com flow|Barrons.com codetype FLOW value Barrons.com source MANUAL status modified name Barrons.com code online name Online title Product code Barrons.com flow Barrons Blogs flow|Barrons Blogs codetype FLOW value Barrons Blogs title Product source MANUAL status modified name Barrons Blogs code Barrons_Blogs headline Cash Flow Is Key Right Now. Thoughts Turn to a ‘Gift-Card Economy.’ headline|Cash Flow Is Key Right Now. 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Mitt Romney pe|Sen. Mitt Romney firstname Mitt lastname Romney displayname Romney, Mitt name Sen. Mitt Romney extractedtext Sen. Mitt Romney source FACTIVA codetype pe code sen_mitt_romney nameformat surname_first relay SYND relay|SYND name Syndication source EXPANDER value SYND codetype RELAY code synd status modified statistic CODES_REVIEWED statistic|CODES_REVIEWED name CODES_REVIEWED value CODES_REVIEWED codetype STATISTIC code CODES_REVIEWED subject BARCORONA subject|BARCORONA ruleid BARCORONA codetype SUBJECT value BARCORONA canbedisplaysubject true name Coronavirus title Coronavirus status modified code BARCORONA subject BARECPOL subject|BARECPOL ruleid BARECPOL codetype SUBJECT value BARECPOL selectable true canbedisplaysubject true name Economy and Policy title Economy and Policy status modified code BARECPOL wordcount 926 wordcount|926 Photograph by Justin Sullivan/Getty Images Cash Flow Is Key Right Now. Thoughts Turn to a ‘Gift-Card Economy.’ Cash Flow Is Key Right Now. Thoughts Turn to a ‘Gift-Card Economy.’ Cash Flow Is Key Right Now. Thoughts Turn to a ‘Gift-Card Economy.’

Cash flow will be the defining economic issue of 2020. Companies large and small are scrambling to prepare for a cash crunch resulting from an expected eight or nine weeks of severely constrained economic activity.

Cash Is King — Never More So Than Now

Cash flow will be the defining economic issue of 2020. Companies large and small are scrambling to prepare for a cash crunch resulting from an expected eight or nine weeks of severely constrained economic activity.

https://www.barrons.com/articles/companies-draw-down-their-credit-lines-should-investors-be-worried-51584039814 https://www.whitehouse.gov/wp-content/uploads/2020/03/03.16.20_coronavirus-guidance_8.5x11_315PM.pdf https://www.barrons.com/articles/a-recession-is-coming-now-its-up-to-our-politicians-to-keep-it-from-getting-worse-51584457431 https://www.wsj.com/articles/SB124874235091485463 https://www.barrons.com/articles/the-latest-coronavirus-data-is-out-the-number-of-new-coronavirus-cases-worldwide-declined-today-51584494693 https://www.apple.com/newsroom/2020/02/investor-update-on-quarterly-guidance/ https://www.wsj.com/articles/u-s-movie-theaters-see-temporary-closures-as-strong-possibility-11584045170 https://www.wsj.com/articles/trump-administration-may-close-u-s-borders-to-unauthorized-foreigners-over-coronavirus-risk-11584495442 https://asset.barrons.com/dynamic-insets/charts/cdc_799c46cc73d94c5b9cb52f2c.json https://www.americanbanker.com/articles/how-cash-hungry-firms-could-take-700-billion-bite-out-of-banks https://www.barrons.com/articles/kraft-heinz-anheuser-busch-inbev-credit-lines-51584457484 https://www.barrons.com/articles/boeing-stock-panic-selling-coronavirus-fallout-capacity-airbus-737-max-51584392984 https://www.barrons.com/articles/boeing-stock-survival-suppliers-aerospace-industry-financial-aid-737-max-cash-crunch-51584545814 https://www.barrons.com/articles/these-6-issues-are-preventing-the-boeing-737-max-from-flying-51580752481 https://www.barrons.com/articles/why-it-might-be-time-to-buy-aerospace-supply-stocks-51584059686 https://www.wsj.com/articles/airlines-seek-up-to-50-billion-in-government-aid-amid-coronavirus-crisis-11584378242 https://www.wsj.com/articles/SB122703811621838291 https://www.wsj.com/articles/the-mostly-unintended-consequences-of-airline-bailouts-11584525705 https://www.wsj.com/articles/giving-americans-money-to-offset-coronavirus-impact-gains-bipartisan-support-in-congress-11584446801 https://onewestport.com/ mailto:allen.root@dowjones.com Cash Flow Is Key Right Now. Thoughts Turn to a ‘Gift-Card Economy.’ By Al Root Photograph by Justin Sullivan/Getty Images Some advocate buying gift cards—spending money now for consumption down the road.

Cash flow will be the defining economic issue of 2020. Companies are scrambling to prepare for a cash crunch resulting from an expected eight or nine weeks of severely constrained economic activity.

Investors are scrambling, too, to understand the stability of cash flow and whether drawing down credit lines is a sign of savvy management or economic distress.

Investors, of course, know about the Great Depression. And the 2008-09 financial crisis is sometimes referred to as the Great Recession. The Covid-19 outbreak is rapidly evolving into the Great Suspension.

Schools, stores, theaters and borders are all closing. Car sales are expected to slow. Real-estate brokers are canceling home showings. There are too many announcements like this to list. People are being encouraged to stay at home to “flatten the curve” so viral infections don’t spike and overwhelm the health system.

https://asset.barrons.com/dynamic-insets/charts/cdc_799c46cc73d94c5b9cb52f2c.json

It is as if the authorities are trying to hit the pause button on the global economy. But is there a pause button? Bills still come due for corporations and individuals alike. Cash, however, isn’t coming in the door.

Investors are about to get a master class on the difference between earnings and cash flow. Both things, in theory, approximate one another. S&P 500 companies, for instance, generated about $1.33 trillion in free cash flow over the past 12 months. They generated about $1.29 trillion in earnings. Close, but bills get paid in cash.

Some companies already realize this. The desire to have more cash on hand is evident. Companies such as Boeing (ticker: BA), Kraft Heinz (KHC) and airline JetBlue Airways (JBLU) have tapped their credit lines, essentially transferring cash from a home-equity-like credit line to a checking account. They feel better with the cash in the bank compared with the promise of cash in the bank.

It looks like a smart decision. “These agreements typically include a material adverse change (MAC) clause or a covenant default clause in the agreement that could allow the bank to refuse funding to a financially troubled borrower,” KBW analyst Brian Klock wrote in a recent research report. There is a chance that borrowing lines could disappear if things get worse. It is good to be early.

Still, the credit line drawdowns have spooked investors. Boeing stock, for instance, is off about 70% year to date, far worse than the comparable drop of the Dow Jones Industrial Average, to levels not seen since 2013. Investors don’t have a sense of why credit actions are being taken and what they portend. It is a scary time.

In the case of Boeing, the company has less than $2 billion in bonds due over the next two years. That isn’t a lot. The company generated about $13 billion in free cash flow a year on average from 2016 to 2018. (Cash flow in 2019 was hurt by the 737 MAX crisis. All of Boeing’s recent stock problems haven’t been Covid-19 related.) The company has the financial wherewithal to weather a few painful months. Boeing’s recent moves are likely about helping its supply chain or preparing for more MAX delays because of the Covid-19 pause.

Boeing wasn’t immediately available to comment on recent credit decisions.

Boeing, as well as airlines, are also asking for bailouts. Part of the requests involve loan guarantees. That isn’t money from the government, but Federal backing makes the lending decision by banks much easier. Loan guarantees are derided by some as propping up inefficient businesses, but they can also help companies survive a cash crunch.

Companies have bailouts and banks, but what do individuals have? Congress has a plan, or at least the inkling of a plan, and is considering writing checks to Americans to help with their cash crunch. Sen. Mitt Romney, for instance, suggests mailing $1,000 to every American.

It helps with the bills, but if American consumers sit on it out of fear, then the money doesn’t do the economy much good. That is the same as banks pulling back lending when the economy dips. For small business, maybe it is time for the gift-card economy—spending money now for consumption down the road.

“Gift card offers won’t generate material incremental demand,” Gordon Haskett restaurant analyst Jeff Farmer said in an interview. He estimates the impact would be small. But small, local restaurants hammered by the outbreak might welcome the idea.

This isn’t a call to shop. It is an observation that acute cash flow problems can become a big issue for any company. Cash flow would be weaker in subsequent quarters as consumers spend gift cards purchased in the first quarter.

But 2020 is looking like a lost year, economically speaking. Near-term cash concern is a big deal right now.

Write to Al Root at allen.root@dowjones.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.