'Technical depression' upends big Minnesota companies: 'No one knows what to make of this'

WASHINGTON – Six of Minnesota's largest publicly traded companies have announced temporary reductions in operations. Four have furloughed large portions of their workforce. And in an unprecedented move, a dozen companies have withdrawn guidance on profit projections.

The COVID-19 pandemic has left many of the state's major corporate players reeling, recent Securities and Exchange Commission filings revealed.

Virtually all of the 48 companies the Star Tribune examined warned investors and regulators of serious financial consequences.

"No one knows what to make of this," said Carol Schleif, deputy chief investment officer at Abbot Downing, a Wells Fargo subsidiary in Minneapolis which provides financial advice to the ultrawealthy. "I've watched Minnesota for a long time. I have never seen companies withdraw guidance."

Minnesota companies that have withdrawn guidance for investors include Pentair PLC, Patterson Cos., Christopher & Banks Corp. Cardiovascular Systems Inc., Sleep Number Corp., the Toro Co., Best Buy Inc., Intricon Corp., Tactile Systems Technology Inc., Northern Technologies International Corp., H.B. Fuller Co., and Apogee Enterprises Inc., which reported annual results April 2 and said the company would not offer guidance for fiscal 2021. Each business told shareholders and regulators that the pandemic made reliable financial predictions impossible.

Dental and animal health products distributor Patterson's explanation was typical. Public and private responses to the COVID-19 pandemic curbed the sales of specific products and hurt the company, it reported, but no one could say how much.

Which companies will suffer most remains unclear, analysts said. Those without sufficient working capital or too much debt and those in vulnerable industry sectors such as retail, hospitality, entertainment and travel sectors are at high risk.

Institutional investors such as those Argento advises drive the stock market. They are scrambling for information such as cash on hand, product lines where sales have dried up, companies that cut dividends, and actions to insure the health of workers.

So far, the pandemic's effect on Minnesota companies and their stocks has been significant.

For example, Polaris, Inc., started 2020 selling for $103 per share. It closed Wednesday at $56. Polaris has been one of Minnesota's most aggressive companies in confronting financial effects of the pandemic. It has ordered two-week unpaid furloughs in the second quarter for most employees and cut executive pay. CEO Scott Wine gave up his salary for the rest of 2020. Polaris also suspended stock buybacks. It briefly halted production of its outdoor recreation products March 23. It restarted production only for "select manufacturing lines for products with adequate demand and supply chain coverage."

On Wednesday, mattress maker Sleep Number closed most of its retail and delivery operations nationwide, furloughed 40% of its 4,400-person workforce and cut hours for nearly a third of those remaining at work. The CEO stopped collecting cash compensation for the rest of the year. The company suspended its matching payments to employees retirement savings. It suspended stock buybacks. The company's share price on Jan. 2 was $47.92. It closed Thursday at $26.57.

Drops in share prices do not matter as much as the pace at which the stock market stabilizes, Argento and Schleif predicted. The market must reach a "bottom" quickly to start its recovery. While some companies in Minnesota that already struggled with money problems or outdated technology may not survive, Argento and Schleif believe analysts and institutional investors could look favorably on strong, early efforts by corporate management teams to absorb the COVID-19 blow.

"In a four-week period we were in a technical depression," Schleif explained.

Companies including Minnesota-based Graco, Regis, Polaris, Sleep Number, and Toro responded by tapping unsecured credit lines to generate hundreds of millions of dollars in cash each. Best Buy borrowed $1.25 billion.

Christopher & Bank, primarily a brick-and-mortar specialty-retail operation of designer women's clothes, temporarily shut 445 stores in 44 states and "furloughed all store associates and over 60% of the remainder of its workforce." It also cut executive pay.

Cardiovascular Systems, Inc. reported that guidance by the U.S. Centers for Medicare & Medicaid Services limiting nonelective surgeries in order to conserve medical equipment would temporarily eliminate some of its business treating artery diseases, though the company could not say how much.

Ecolab Inc. CEO Doug Baker, whose company sells soap and cleaners, among other products, said "mandated actions to reduce [COVID-19] transmissions by limiting social interactions" cut demand from "restaurant and hospitality customers." The restaurant and hospitality industries have been decimated by mandatory restrictions on large social gathering and stay-at-home orders.

"If this [downturn] is three to six months," Schleif thinks "the market will look past the awful numbers."

More than that and things get dicey.

Other financial crises in recent history resulted from mistakes within the system, Schleif said. She cited lending to companies with ridiculous price-to-earnings ratios in the tech bust of the 1990s and real estate loans to unqualified borrowers that begot the Great Recession in 2008.