‘Feels like we’re at the bottom’: Some executives see signs of recovery in April

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  • Tech companies fairly consistently saw a steep crash in March and early April, followed by a slow pickup in business in late April.
  • In the auto industry, “We continue to see evidence that we are over the worst and we are firmly in recovery,” said J.D. Power’s president of data analytics, Thomas King.
  • In restaurants and travel, two of the hardest-hit sectors, declines may have hit bottom.
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A server wearing a protective mask serves a drink to a customer in the outside dining area of a restaurant in St. Petersburg, Florida, on Monday, May 4, 2020.
A server wearing a protective mask serves a drink to a customer in the outside dining area of a restaurant in St. Petersburg, Florida, on Monday, May 4, 2020.
Zack Wittman | Bloomberg via Getty Images

The coronavirus pandemic ground the U.S. economy to a near halt in March and April. But in the last couple of weeks, many company executives and investors across industries say they are seeing small signs business is picking up again. At the very least, there is evidence the sharp downturn has hit bottom.

Uber CEO Dara Khosrowshahi said more people have requested rides in recent weeks. Car sales have started to rebound, according to data from J.D. Power. And some retailers, including Costco and CVS Health, said foot traffic is increasing at stores.

But the toll of the pandemic is large, and it will make recovery complex. As the economy reopens in some states, people are slowly returning to stores, restaurants and other businesses — but that comes with risk of another outbreak.

More than 80,000 Americans have died after contracting Covid-19, according to data compiled by NBC News. In some parts of the country, coronavirus cases and hospitalizations are still climbing. With no vaccine or treatment, people may still be reluctant to go to public places.

Meanwhile, a surge in job losses has cast a pall over consumer spending in the near term. U.S. unemployment shot up to 14.7% in the April jobs report, smashing post-World War II-era records.

Tech optimism: ‘Signs of stability’

Companies throughout the tech industry expressed cautious optimism on earnings calls for the March quarter, suggesting that things were starting to look up in April after an alarming drop-off in March.

Apple CEO Tim Cook told CNBC’s Josh Lipton, “There was a significant, very steep fall-off in February. That began to recover some in March, and we’ve seen further recovery in April. So, it leaves us room for optimism.”

Both Alphabet, Google’s parent company, and Facebook, whose businesses rely primarily on online advertising, said that the drop-off in March was steep but suggested things weren’t getting worse.

Alphabet CFO Ruth Porat told investors, “The decline in our Search and other ads revenue was abrupt in March, and although we’re seeing some early signs at this point that users are returning to more commercial behavior, it’s not clear how durable or monetizable that will be.”

In its earnings release, Facebook said, “We have seen signs of stability reflected in the first three weeks of April, where advertising revenue has been approximately flat compared to the same period a year ago, down from the 17% year-over-year growth in the first quarter of 2020.”

In Microsoft’s earnings report for the March quarter, the company said the coronavirus “had minimal net impact on the total company revenue” in the quarter but warned that the “effects of COVID-19 may not be fully reflected in the financial results until future periods.”

Aside from the giants, some smaller tech companies sounded cautiously optimistic as well. Uber’s Khosrowshahi acknowledged that the company’s Rides business was down 80% from last year in April but then said there were some “green shoots driving optimism,” noting that the volume of rides taken had started to grow again in the second half of April and early May.

Uber rival Lyft painted a similar picture, saying that ride volume grew 13% between the week ended April 5 and the week ended May 3 — although that increase was off a very low base after a huge decline in March.

Auto industry: ‘We are over the worst’

Automakers have seen signs of a rebound sooner than many initially expected when the coronavirus started devastating the industry in March. While sales remain down more than 10% compared with a year ago, J.D. Power reports there have been four consecutive weeks of retail sales growth through May 3.

“The good news is that we continue to see evidence that we are over the worst and we are firmly in recovery,” said Thomas King, J.D. Power president of data and analytics. The firm slowly raised its low-end guidance for sales this year from about 12 million to 13 million; high-end guidance remained stable at around 14.5 million. Sales were 17 million in 2019.

General Motors CEO and Chairman Mary Barra told investors last week that it’s “too soon to tell” what kind of recovery the auto industry will have in the U.S. but there is reason for some optimism. In China, where Covid-19 originated and shut down operations for automakers in late January, the industry is recovering.

“We think it’s very good that we’re seeing the recovery in China that is more like a V recovery, but we’re not counting on that,” Barra said. “I think it’s too soon to tell, but we’re very positive about what we see happening in China. And we’re even seeing some uptick after the low in North America, specifically the United States, that didn’t get as low as it did in China.”

In the U.S., relaxation of stay-at-home orders for auto retailers as well as consumers wanting to take advantage of big discounts and 0% financing offers of up to 84 months have been contributing to the faster-than-expected rebound.

When states initially started enacting the orders, some banned all sales, even online. All of those states have since eased those orders to at least allow online sales. J.D. Power reports markets such as Detroit, Miami and New York are continuing to recover, while areas such as Phoenix and Dallas have remained resilient through the pandemic.

Mike Jackson, CEO of AutoNation, the country’s largest auto retailer, told CNBC’s “Squawk Box” on Monday that he’s “comfortable” with “declaring the automotive recovery is underway.”

Despite the optimism, the auto industry is expected to sell millions fewer cars this year because of the coronavirus. Prior to the pandemic, experts expected U.S. vehicle sales of about 16.8 million.

A bleaker outlook for restaurants, retail and air travel

Restaurant transactions declines are starting to reverse after hitting their nadir in mid-April, but fast-food establishments are the only restaurant segment that’s close to returning to pre-pandemic sales. Same-store sales at fast-food restaurants fell less than 2% during the week ended April 26, according to industry tracker Black Box Intelligence.

Executives from McDonald’s and Wendy’s said on their first-quarter earnings calls that consumers are gravitating toward familiar brands and products, such as Big Macs and Frosties, during a time of such uncertainty. Fast-food chains, with their cheap deals, are also best positioned to weather the recession.

The outlook for the rest of the restaurant industry is bleaker. The National Restaurant Association estimates $80 billion in sales has been lost through April and losses could reach up to $240 billion by the end of the year. An April survey of small businesses from the National Bureau of Economic Research estimated that restaurants will have only a 30% chance of survival if the crisis lasts four months.

Retailers are still waiting to see how customers’ safety concerns and tighter budgets may influence their purchases.

After initial stockpiling of toilet paper, cleaning supplies and more, Walgreens and Target both had a drop-off in sales in late March during shelter-in-place orders. Costco had its worst month for sales in more than a decade in April, despite its large aisles of frozen entrees and supersized cleaning supplies.

Customers’ shopping habits have changed, too, as they gravitate toward necessities and away from higher-margin departments. Walgreens has seen a drop in beauty purchases. Target has seen a decrease in apparel and accessories sales. And Costco said it’s sold less luggage, jewelry and apparel.

But David Sherwood, Costco’s assistant vice president of finance and investor relations, said in a recorded investor call that tides are beginning to turn. He said in April, the retailer “did see week-to-week improvement in sales and traffic for all four weeks.”

Target said it saw a “meaningful” pickup in sales starting April 15. And CVS Health’s chief operating officer Jonathan Roberts said last week in an earnings call that while all categories at the drugstore chain were down in April after a March increase, they’re “beginning to see sales improve” as shelter-at-home orders lift.

In the battered air-travel sector, signs of increased demand are starting to emerge. But they are modest, and airline chiefs have warned they expect to emerge smaller this fall, despite billions in federal aid. On Friday, 215,444 people passed through U.S. airport security checkpoints, according to the Transportation Security Administration. That was the highest number since March 25.

In mid-April, American Airlines CEO Doug Parker told CNBC that there were a few signals of demand returning, but he cautioned there were too many unknowns to declare it a recovery.

“It certainly feels like we’re at the bottom,” Parker said. “Our revenues are down 90% on a year-over-year basis, and they’ve been that way now for a few weeks. The real question is how long you stay at the bottom and when do we begin to recover. I don’t think I know that better than anybody else.”

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