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Dow Jones News: Consumer Giants Tumble; Cisco Down on Layoffs

By Timothy Green - Feb 28, 2020 at 10:35AM

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Shares of well-known companies are taking it on the chin, and Cisco is downsizing its workforce to deal with a slump in demand.

The stock market was carving out new all-time highs not too long ago. The novel coronavirus outbreak put an end to that. The Dow Jones Industrial Average (^DJI 0.23%) was down 3% at 10:55 a.m. EST Friday, bringing its weekly losses close to 15%.

No stock in the Dow was left untouched by this sell-off, with the consumer giants suffering particularly steep declines. Shares of tech giant Cisco (CSCO -0.81%) were also suffering after reports of layoffs at the networking hardware provider.

Consumer giants down big

It's not a good day for the consumer-facing stocks in the Dow. As the novel coronavirus -- which causes the COVID-19 illness -- gains ground outside of China, investors are in panic mode.

A scared man.

Image source: Getty Images.

Coca-Cola (KO -0.46%) stock was down 5% in the morning, pushing shares of the beverage giant about 13.4% below its 52-week high. Earlier this month, Coca-Cola warned that the outbreak would hurt its first-quarter results, shaving 2 or 3 percentage points off its unit case volume and $0.01 or $0.02 off earnings per share. The company said it still expected to hit its full-year guidance, but investors don't seem so sure.

Shares of mega-retailer Walmart (WMT 0.80%) were also down big, trading 4.1% lower. Walmart hasn't warned about an impact from the novel coronavirus outbreak, but the company will certainly be affected if U.S. consumers begin avoiding stores to minimize the risk of catching the virus.

McDonald's (MCD -0.54%) stock is also suffering, down 4.6%. McDonald's has the same problem as Walmart, with the potential for traffic declines if consumers stay home. McDonald's doesn't have much exposure to China directly, with analysts at Cowen estimating that just 3% of its revenue comes from the country. But a drop in restaurant demand in the U.S. could wreak havoc on its results, at least in the short term.

Shares of Home Depot (HD 0.82%) are also tumbling, down 4.1%. The home improvement retailer's recent results have been solid, with strong 5.2% comparable sales growth in the fourth quarter. But sales growth could slow if home improvement projects are put on hold due to an outbreak of the novel coronavirus in the U.S.

It's important to note that all four of these blue-chip stocks were expensive going into this market sell-off, so valuation is likely playing a role. Even after the declines this week, all four stocks still trade for more than 20 times trailing earnings.

Cisco starts laying people off

Networking hardware giant Cisco was already dealing with some of its customers pulling back on orders due to economic uncertainty caused in part by the trade war between the U.S. and China. Sales were down 3.5% in the fiscal second quarter, and the company expects sales to be down between 1.5% and 3.5% in the third quarter. The global coronavirus outbreak won't help matters.

The Wall Street Journal reported late Thursday that Cisco was starting a new round of layoffs amid slumping sales. The scope of the layoffs isn't known, but the company confirmed to the Journal that the move was part of an ongoing process.

Downturns in demand are nothing new for Cisco, which has a customer base comprised of large companies, organizations, and governments. When those customers face uncertainty, orders can be delayed or downsized, which hits Cisco's sales. It will all work itself out eventually, but Cisco will feel some pain for at least a few quarters.

Cisco hasn't yet warned about the coronavirus impacting its business, but a warning could be coming if the outbreak continues to worsen. Cisco stock was down 2.3% Friday morning.

Timothy Green owns shares of Cisco Systems. The Motley Fool owns shares of and recommends Home Depot and recommends the following options: long January 2021 $120 calls on Home Depot and short January 2021 $210 calls on Home Depot. The Motley Fool has a disclosure policy.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$259.23 (-0.54%) $-1.41
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$126.58 (0.80%) $1.01
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$45.01 (-0.81%) $0.37
The Coca-Cola Company Stock Quote
The Coca-Cola Company
KO
$63.38 (-0.46%) $0.29
The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
HD
$309.69 (0.82%) $2.52
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$32,803.47 (0.23%) $76.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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