The Dow Jones Industrial Average (DJINDICES:^DJI) fell on Thursday, down 0.65% at 2 p.m. EST. Warnings from companies about the negative impact of the coronavirus outbreak in China might be taking a toll on the index.
Dropping along with the Dow were Disney (NYSE:DIS) and Intel (NASDAQ:INTC). Disney stock was lower after theme-park rival Six Flags (NYSE:SIX) warned about a tough 2020 and cut its dividend, while Intel stock slumped against a backdrop of supply chain disruptions and weakening demand related to the coronavirus outbreak.
Disney caught up in Six Flags debacle
Disney's theme-park business is in a league of its own, but that didn't stop investors from pushing down the stock after Six Flags warned about revenue growth and slashed its dividend. Six Flags stock was down around 18% in the afternoon, while Disney stock was 1.2% lower.
Six Flags generated fourth-quarter revenue of $261 million, down 3.2% year over year. That number was slightly better than what analysts were expecting, but the bottom line was much worse. Six Flags reported a per-share loss of $0.13, down from a profit of $0.93 in the prior-year period and $0.29 below the average analyst estimate.
For 2020, Six Flags painted a bleak picture. "Soft organic revenue trends, and increasing operating cost headwinds, primarily related to higher minimum and market wages, will be difficult to overcome in 2020," read the company's earnings release. Six Flags expects significantly lower contributions from its international development agreements, organic revenue trends that won't get any better compared to 2019, and operating cost headwinds.
Given the expected headwinds in 2020, Six Flags cut its quarterly dividend to just $0.25 per share, down about 70% from the previous dividend.
Some of these problems are specific to Six Flags, but Disney is certainly not immune to an industry downturn. The company has been consistently raising ticket prices to drive revenue growth, but it will eventually run up against the limits of its pricing power. That could spell trouble for Disney, especially if the U.S. economy weakens.
Intel takes a dive
While there was no company-specific news, the coronavirus outbreak in China might be the root cause of Intel's weak performance on Thursday. The stock was down 3.1% in the afternoon as investors weighed the potential impact of the outbreak on Intel's business.
Part of the problem for Intel is that it generates a bit more than 25% of its revenue from China. It's clear from Apple's recent revenue warning that consumer demand for smartphones has deteriorated thanks to the outbreak, so it's likely that PC sales have taken a hit in the country as well.
Another issue: Most laptops are manufactured in China, and the outbreak is causing supply chain issues for the electronics industry. Beyond weak demand, Apple's revenue warning was also related to supply constraints as suppliers ramped up production more slowly than expected. The same scenario could play out for laptops, which would further hurt the tech giant's revenue.
While Intel stock was down Thursday, investors remain optimistic on the company's prospects. The stock is still up about 27% over the past year, trading only a bit shy of its multiyear high. Whether this optimism is warranted remains to be seen.