More stories

  • in

    Kodak shares tank more than 40% as government loan is put on pause while allegations investigated

    Shares of Eastman Kodak plunged more than 40% on Monday after a federal agency said it was reviewing a previously announced $765 million loan for the onetime photography pioneer to produce drug ingredients.
    “Recent allegations of wrongdoing raise serious concerns. We will not proceed any further unless these allegations are cleared,” the U.S. International Development Finance Corporation said in a tweet Friday.

    The review of funding comes as the Securities and Exchange Commission is reportedly investigating how the company disclosed the deal with the government, according to a report from The Wall Street Journal. The probe is also reportedly expected to review stock options that were granted to executive chairman James Continenza ahead of the announcement.
    The stock has been on a wild ride since the funding was announced on Tuesday, July 28. But trading activity picked up the day before the official announcement, which raised some eyebrows on the Street.
    The day before the deal was announced the stock jumped 25%, and saw 1,645,719 shares exchange hands, far surpassing the average daily trading volume of 236,479 for the year prior, according to data from FactSet.
    As news of the deal broke Kodak, which had been trading under $2, skyrocketed. Within two days, the stock was trading at $60, with 284 million shares changing hands. In the span of just 24 hours, more than 100,000 investors added the stock to their account on Robinhood, an app popular with millennial investors, according to data from Robintrack. The stock was so volatile the day after the announcement — at one point it was up more than 600% — that it was halted 20 times during the session.
    But the momentum didn’t hold and on Friday the stock closed at $14.88, or 75% below its recent high. However, the current price is still more than 400% above where the stock traded ahead of the loan announcement.

    The loan, which was the first of its kind under the Defense Production Act, was meant to aid the company in its pivot to drug production. With the funding, Kodak said it would expand existing facilities in Rochester, New York and St. Paul, Minnesota under a new Kodak Pharmaceuticals arm, which would produce drugs to treat a wide variety of illnesses. 
    “Our 33rd use of the Defense Production Act will mobilize Kodak to make generic, active pharmaceutical ingredients,” president Donald Trump said when announcing the deal. “We will bring back our jobs and we will make America the world’s premier medical manufacturer and supplier.”
    The president later walked back his comments, saying he was “not involved” in the loan.
    Kodak released the news to local reporters in Rochester, New York, where it is headquartered, on July 27 then asked several outlets that had picked up the story to delete it, which they did. According to a Kodak spokesperson, the company’s internal communications team “did not intend for the news to be published.”
    “We feel very comfortable that we’re going to get to the end game,” James Continenza, Eastman Kodak executive chairman, told CNBC’s “Squawk Box” after the deal was announced. “We signed a letter of interest and we’ve been working on this for a few months. We feel very comfortable,” he added.
    Filings with the Security and Exchange Commission show that on June 23 Continenza purchased roughly 46,700 additional shares. On the same date, board member Philippe Katz purchased 5,000 shares. Additionally, the day before the deal was announced the company granted Continenza options for 1.75 million shares, just under 29% of which vested immediately.
    White House economic advisor Peter Navarro on Friday praised the DFC for its move, saying he was “very disappointed” over the allegations.
    Sen. Elizabeth Warren, D-Mass., has called on the SEC to look into the trading that occurred prior to the official announcement.
    “There were several instances of unusual trading activity prior to the announcement, raising questions about whether one or more individuals may have engaged in insider trading or in the unauthorized disclosure of material, nonpublic information regarding the forthcoming $765 million loan awarded under the Defense Production Act,” Warren wrote in an open letter.
    The U.S. House Financial Services Committee has also called for an investigation into the company, citing “growing concern regarding insider trading.”
    Kodak has previously said that it would cooperate with any potential inquiries, and on Friday the company said it was launching an internal investigation.
    Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world. More

  • in

    Stocks making the biggest moves premarket: Marriott, Eastman Kodak, Twitter, FedEx & more

    Check out the companies making headlines before the bell:
    Marriott – The hotel operator reported an adjusted quarterly loss of 64 cents per share, wider than the 42 cent loss predicted by analysts and the first quarterly loss for Marriott in nearly nine years. Marriott continues to suffer from the impact of a Covid-19 related hit to travel demand.

    Barrick Gold – The mining company beat estimates by 4 cents with adjusted quarterly profit of 23 cents per share, with revenue also above analyst forecasts. Barrick benefited from the surge in gold prices to a record high, as well as increased copper production.
    SeaWorld – The theme park operator lost $1.68 per share for its latest quarter, wider than the loss of 97 cents that analysts were anticipating. Revenue was well below forecasts, as the pandemic led to park closures.
    Canopy Growth – The cannabis producer reported a smaller quarterly loss and better-than-expected revenue, as restructuring helped rein in expenses and the pandemic boosted demand for its products.
    Berkshire Hathaway – Berkshire reported a 10% drop in operating profit from a year ago during the second quarter, and took a $9.8 billion writedown for its struggling Precision Castparts unit. However, overall profit jumped 86%, thanks to gains in Berkshire’s investment portfolio. Berkshire also bought back $5.1 billion in stock during the quarter.
    Roper Technologies – The software company is in talks to buy insurance software vendor Vertafore for about $5.5 billion, according to a Reuters report. If Roper can strike the deal for the private equity-owned Vertafore, it would be its largest acquisition to date.

    AT&T – AT&T’s WarnerMedia unit has removed key members of the leadership team at the company’s HBO MAX service as part of a reorganization. WarnerMedia Entertainment Chairman Robert Greenblatt and head of content Kevin Reilly were ousted, with Warner Brothers Chair and Chief Executive Ann Sarnoff now in charge of all content distributed on company platforms.
    Eastman Kodak – A $765 million government loan to Eastman Kodak has been put on hold, with the U.S. International Development Finance Corp. saying it was taking that action due to “recent allegations of wrongdoing.” The Securities and Exchange Commission is reportedly investigating stock options granted to executives one day before the loan was announced.
    Twitter – Twitter is said to be interested in the U.S. operations of TikTok, according to multiple reports. Twitter would be competing with Microsoft, which is already in talks with TikTok parent ByteDance. – Amazon and Simon Property Group are discussing turning department store space into Amazon fulfillment centers, according to the Wall Street Journal. The talks are said to focus on current or former spaces occupied by bankrupt retailers Sears and J.C. Penney.
    FedEx – Bernstein upgraded FedEx to “outperform” from “market perform,” citing its expectation of better residential pricing and improved FedEx Ground profit margins among other factors. More

  • in

    McDonald's sues former CEO Easterbrook, alleges he lied about relationships he had with workers

    Steve Easterbrook, chief executive officer of McDonald’s Corp., speaks during the opening of the company’s new headquarters in Chicago, Illinois, U.S., on Monday, June 4, 2018.
    Joshua Lott | Bloomberg | Getty Images

    McDonald’s is suing its former CEO Steve Easterbrook for allegedly lying during the company’s internal probe into his behavior, according to a filing with the Securities and Exchange Commission.
    The fast-food chain’s board announced in November that it had terminated Easterbrook for having a consensual relationship with an employee and tapped Chris Kempczinski as his successor. McDonald’s now alleges that new information about Easterbrook’s actions came to light, prompting further investigation from the company.

    A probe allegedly revealed that Easterbrook lied to the company and destroyed information regarding his inappropriate behavior, including three additional sexual relationships with employees before his firing. Uncovered evidence includes dozens of nude or sexually explicit photos and videos of women — including images of the female employees — that were taken in late 2018 or early 2019 and sent as attachments from his corporate email account to his personal email, according to the lawsuit.  
    Easterbrook also approved “an extraordinary stock grant, worth hundreds of thousands of dollars” for one of the employees while they were involved in a sexual relationship, according to the complaint.
    The board said it would not have signed a separation agreement with Easterbrook had it known about this alleged conduct. McDonald’s is suing him in Delaware state court to recover the compensation and severance benefits he received as part of that agreement. The company said it has also taken action to prevent him from exercising any stock options or selling any stock from outstanding equity rewards. 
    Easterbrook’s separation agreement included 26 weeks of severance. In 2018, he earned $15.9 million in total compensation, including a $1.3 million base salary. He was also eligible for prorated payment for hitting 2019 performance targets.
    This is breaking news. Please check back for updates. More

  • in

    'We can't run a business in a dead planet': CEOs plan to prioritize green issues post-coronavirus

    Part of the Amazon rainforest in Peru
    Gustavo Ramirez | Getty Images

    The coronavirus pandemic has created significant new ways of doing business that could benefit both the economy and environment, according to business leaders, who said there was no other option but to shift toward sustainability. 
    In June, Brazilian cosmetics giant Natura launched its “Commitment to Life” vision for the next 10 years. The plan includes pledges to reduce its emissions to net zero, have 30% of its management made up of under-represented groups, and make all of its packaging reusable, recyclable or compostable.

    “(This) is even more relevant because of the time we are in and the importance of really thinking about how we want to shape the world coming out of this crisis,” Natura CEO Roberto Marques told CNBC by phone. Natura owns British brand The Body Shop, Australian skincare company Aesop, and in January closed a deal to buy American business Avon, creating a group that it claims has 200 million customers.
    For Natura, financial growth and sustainability go hand-in-hand, and executives’ remuneration has been partly based on green goals, Marques said. 
    As with other manufacturers, it’s in Natura’s interest to focus on sustainability in an effort to ensure, for instance, that raw materials are available in the long term. “We can’t run a business in a dead planet … There is no other option for companies and leaders,” Marques added.
    Asked what he would like from Brazilian President Jair Bolsonaro, who has been criticized for his skepticism over green issues, Marques said: “We strongly believe that the answer is dialog, including the key stakeholders.” 

    For Richard Mattison, CEO of Trucost, a company owned by S&P Global that estimates climate risks to businesses, the pandemic has created opportunities that are good for the economy and the planet.

    Mattison suggested there were three things companies can do: cut business travel, instigate a work-from-home policy and make supply chains more local.
    “For example, if the professional services sector set a work-from-home policy for three days a week, that would (put) the entire passenger transportation system in alignment with climate goals,” Mattison told CNBC’s Geoff Cutmore in an interview in May.
    Reducing business travel by 40% and relying more on video calls would mean the aviation industry was on track to meet climate goals pledged as part of the 2015 Paris Agreement, he added.
    Travel is something that companies have signaled they may cut. For example, Martin Sorrell, executive chairman of advertising group S4 Capital, has said he will fly less. “I will travel less. I will attend fewer conferences. I will be more conscious of deploying my time in a much more effective way,” he told CNBC in May.

    Green shoots

    Governments around the world are releasing funds to boost the economy during the pandemic — and some have included green measures. In May, the European Commission announced a new coronavirus-related stimulus package, with 150 billion euros allocated to green initiatives.
    For Helen Clarkson, CEO of nonprofit The Climate Group, post-pandemic spending is a critical opportunity to invest in ways to get to net zero greenhouse gas emissions. After the 2008-2009 recession, sustainability issues tended to be ignored, she told CNBC by phone. “There was really a sense of leave us alone, we have just got to get things back to normal and then we’ll come and talk to you sustainability people again,” she said.
    But now, things are different, in part due to pressure from younger generations and also because businesses are having to reimagine themselves, Clarkson added.
    “(The pandemic) is almost the biggest psychological shock we’ve all had … Every business is looking at its business model and its budgets and its annual plans and saying, well, this is up for grabs,” Clarkson stated.
    Compare Ethics is a site that lets shoppers compare clothing brands’ commitment to issues such as paying a living wage or using recycled materials. It was founded by young entrepreneurs James Omisakin and Abbie Morris, who said the pandemic has meant that consumers have paid more attention to supply chains.

    Abbie Morris and James Omisakin, founders of Compare Ethics, a sustainable e-commerce fashion platform.
    Compare Ethics

    “Consumers and employees are now acutely aware of how their lives can change overnight and how supply chains directly affect them,” Morris told CNBC by email. She added that sales of clothing via the Compare Ethics platform were up 150% in June compared to May.
    Omisakin is hopeful that the business world will continue to think about green issues. “There’s no choice now but to place the planet first. Senior leaders know that without synergy, nature will ultimately disrupt and disarm business efforts,” he told CNBC by email.

    Government action

    The Climate Group has put pressure on governments to create a policy framework to speed up the way green energy is bought by corporates, and in June sent a letter to the EU calling for, among other measures, the funding of electricity infrastructure to be prioritized. Signatories included AB InBev, Google and Visa.
    Europe leads the way when it comes to green initiatives, Clarkson said. “Where Europe leads, others will follow. I feel the reason it’s important to keep the pressure on the EU (is) because they’re the most likely of all the regions in the world to (take action).”
    In June, Unilever announced a $1 billion investment into a climate and nature fund and pledged net-zero emissions across all of its products by 2039. Marc Engel, the company’s chief supply chain officer, called for governments to make plans for net-zero emissions goals by 2050 at the latest.
    “These long-term goals must also translate into short-term targets to reduce greenhouse gases consistent with that level of ambition. Right now, we’re simply not there,” Engel stated in an email to CNBC. More

  • in

    Since 1992, how the Dow, S&P trade in the three months into Election Day

    The 2020 U.S. presidential election is now just under three months away. Uncertainty about who will become the next president  — a successful reelection campaign for President Donald Trump or change in power to Democratic Party candidate Joe Biden, who currently is ahead in the polls — has been cited as a reason for recent investor caution. 
    That’s nothing new. Political uncertainty is often cited during these Election Day run-up periods as a reason for investors to run from the market or in the least hedge investments. Classic hedge gold has been soaring even as stocks continue to surge through earnings season, but there are many potential reasons for that, including fears of the rising national deficit and inflation.   

    The Nasdaq closed at another record level last week, the S&P 500 was positive for five-straight days, and market history says politics should never be the reason to run from stocks. There is more political uncertainty than solely related to the election right now, with lawmakers on Capitol Hill unable to reach a new agreement on coronavirus aid seen as critical to keeping the U.S. economy on a recovery track. But placing stock bets based on politics is rarely a wise play, according to financial advisors, and the wealthy don’t typically plan their portfolios entirely around Republicans or Democrats.
    Stocks have been down more often than not during three-month periods before presidential elections, but the picture is mixed. 

    The Dow and S&P have been more likely to post losses than gains in recent election lead-up periods, but the 2008 financial crisis has an outsize impact on the average numbers.

    Biden’s big lead in the polls has been cited in recent weeks as a reason for down days in the market, and Wall Street is worried about a rollback of the corporate tax cuts which have helped to boost profits. But some on Wall Street have moved into the Biden camp more recently, contributing considerable money to his campaign, according to a recent New York Times report. Hedge fund manager Seth Klarman of Baupost, at one point a large donor to the Republican Party, has given $3 million to groups associated with Biden.
    While there are reasons for investors to be concerned about continued gains from current stock market valuations, “Don’t let politics get in the way of money,” Bruce Weininger, principal and senior financial advisor at Chicago-based wealth management firm Kovitz, recently told CNBC. “There is no evidence Republicans are better for investments. … If you let politics drive investment decisions you will have bad results.”
    Looking more closely at the recent history since 1992 — a period encompassing seven presidential election cycles — stock performance in the three-month period ahead of November reinforces the view that politics do not offer investors a clear pattern for investment decisions.

    The Dow Jones Industrial Average and S&P 500 have been more negative than positive in these periods since 1992, but without a clear trend. In fact, the S&P 500 has flip-flopped from negative to positive, and back again, in these 90-day stretches across each of the four-year cycles since 1992.
    The two major equity indices have posted losses in the lead-ups to elections four out of the seven times, and the average return across all seven elections is negative: the S&P 500 down 1.58%, on average, and the Dow negative by 1.5%, on average, according to information from hedge fund trading platform Kensho.
    But there is a big caveat when reviewing the average losses: the selloff suffered by stocks in Fall 2008 as the financial crisis played out during the election battle between Barack Obama and John McCain weighs heavily on the results, with a three-month decline in the S&P 500 of over 20%, and a 15% for the Dow.
    The political party in power has not been the deciding factor in the recent market trend. In 1996, when Bill Clinton was re-elected, U.S. stocks were up by 7% during this run-up period. When President Obama was reelected in 2012, the S&P was higher by close to 4% in the months ahead of Election Day.   

    The markets have bounced back and forth betweens gains and losses in the three-month periods into Election Day since 1992.
    Kensho More

  • in

    'Vast' gap in funding needed to fight the coronavirus, WHO warns

    A relative of a Covid-19 patient queues to recharge oxygen tanks for their loved ones at the regional hospital in Iquitos, the largest city in the Peruvian Amazon, Peru.
    CESAR VON BANCELS | AFP | Getty Images

    The head of the World Health Organization warned Monday of a huge gap in funding to help fight the coronavirus pandemic.
    WHO chief Tedros Adhanom Ghebreyesus said there was a “vast global gap” between the organization’s ambition for a fund, known as the “Access to Covid-19 Tools Accelerator” (or ACT-Accelerator), and the funds already pledged to fight the virus.

    “We have to fundamentally scale up the way we are financing the ACT-Accelerator and prioritize the use of new tools,” Tedros said at the global health body’s latest media briefing in Geneva.
    “While we’re grateful for those that have made contributions, we’re only 10% of the way to funding the billions required to realize the promise of the ACT Accelerator,” he said.
    The ACT Accelerator was launched in April 2020 and is attempting to bring together governments, health organizations, scientists, businesses and philanthropists to speed up an end to the pandemic by supporting the development and distribution of the diagnostics, vaccines and treatments needed.
    The Economist Intelligence Unit (EIU), which is tracking the amount of money pledged globally to fight the virus, including funding under the ACT Accelerator initiative, says that $9.9 billion has been pledged to date.
    Tedros said that the funding needed for vaccines alone was over $100 billion. While a lot of money, the figure was “small in comparison to the 10 trillion dollars that have already been invested by G-20 countries in fiscal stimulus to deal with the consequences of the pandemic so far,” he said.

    Tedros said the total number of registered coronavirus cases worldwide would hit 20 million this week (to date, the number of cases stands at 19,877,261). The number of confirmed fatalities stands at 731,570, according to data from Johns Hopkins University.
    Acknowledging the suffering caused by the pandemic, Tedros said there were “green shoots of hope,” nonetheless.
    “No matter where a country, a region, a city or a town is — it’s never too late to turn the outbreak around,” Tedros told the news briefing. 
    “There are two essential elements to addressing the pandemic effectively: Leaders must step up to take action and citizens need to embrace new measures,” he said, emphasizing that the best way to beat the virus was to suppress it.
    “My message is crystal clear: suppress, suppress, suppress the virus.” More

  • in

    Op-ed: Here's how to prepare an investment plan for a Trump or Biden presidency

    Joe Biden and Donald Trump
    Ron Adar | Echoes Wire | Barcroft Media via Getty Images; Mandel Ngan | AFP | Getty Images

    Every four years, as we approach the U.S. presidential election, we reflect on the wide-ranging implications of each potential outcome.
    As is always the case, much is at stake during the current cycle, including how best to address the new and old challenges facing our nation. This year, our economic future — as a nation and individually — will certainly be a top consideration.

    Our president for the next four years will be tasked with setting the agenda for bringing us out of the worst economic crisis since the Great Depression. Depending on whether he ultimately can secure the support of a constantly changing Congress, his approach could have dramatic repercussions.

    Similar objectives — different approaches

    President Donald Trump and presumptive Democratic nominee Joseph Biden are both focused on stimulating employment and personal prosperity to restart our economy and overcome the financial hardships endured by so many. And both candidates seem focused on tax policy, infrastructure and other spending programs as the main components of their plans to achieve their economic objectives.
    The similarities, however, end there, as the candidates’ approaches to these subjects are quite different. In turn, financial planning for the election requires careful attention to the plans of each candidate, as well as a thoughtful strategy for anticipating their consequences.

    Tax issues

    Joe Raedle | Getty Images

    The bare-bones tax positions of the candidates are that Trump wants to lower taxes, and Biden wants to raise them. During the 2016 campaign, Trump promised to lower corporate and individual income taxes. In 2017, he signed the Tax Cuts and Jobs Act, making good on that promise. Trump has not yet released an outline of a future tax plan, but he has said he wants to add to and extend the TCJA, much of which is scheduled to phase out by 2025.
    As for Biden, he has vowed to roll back most of the TCJA, arguing that it was irresponsible and did not stimulate economic growth. Biden has offered a different view on stimulating economic growth. He suggests a $4 trillion tax hike, placing most of the increased burden on businesses and on people earning more than $400,000 annually.

    More from Your Money Your Future:Why you might not see a payroll tax cut despite a Trump orderWhat worries Medicare recipients about costsPros warn against making these investing mistakes
    For corporations, he plans to raise the highest income-tax rate to 28%, from 21%, and impose a minimum tax. For pass-through entities and sole proprietorships, he would phase out the TCJA’s 20% deduction for qualified business income.
    For individuals, Biden wants to raise the top income-tax rate to 39.6% from 37%, cap itemized deductions and increase Social Security taxes on high earners. For those earning more than $1 million, he also wants to raise the capital-gain and qualified-dividend tax rates to 39.6%, from 20%. Along these lines of taxing investment income, he has proposed limiting the ability to engage in tax-deferred like-kind exchanges of real estate and repealing the tax-free basis step-up upon death. For estate and gift tax purposes, he wants to lower the exemption amounts.

    Making a financial game plan

    So, what does this mean from a financial-planning and strategy perspective?
    The answer depends on one’s perspective on who will win the election and who will control Congress. It also depends on one’s view of how long it ultimately will take to enact any new legislation, which could be delayed intentionally if there is any concern it could impede the economic recovery.
    For those preparing for a Trump victory, current strategies are likely to remain viable.

    For those assuming a Biden victory, the following strategies should be considered, especially if the Democrats can take control of Congress.  Again, however, some of these strategies may be able to wait if it appears that prospective changes will be delayed.
    Accelerate the recognition of long-term capital gains for transactions that otherwise might happen over the next few years.
    Accelerate ordinary income that can be moved to a lower-tax year, especially compensation income such as bonuses that could be subject to increased social security taxes.
    Accelerate itemized deductions (if over the standard deduction).
    Accelerate the use of available qualified business income deductions for pass-through entities.
    Accelerate like-kind exchanges of real property planned for the near future.
    Review and change estate and gifting plans for foreseeable changes involving estate and gift taxes.
    Accelerate taxable corporate transactions that otherwise might occur in the near future.
    Accelerate the payment by corporations of qualified dividends into lower-tax years.

    Infrastructure and other plans

    As for other plans, this time we’ll start with Biden.

    Both President Donald Trump and presumptive Democratic candidate Joe Biden include mass transit like the Washington Metropolitan Area Transit Authority system in their infrastructure spending plans.
    Robert Alexander | Archive Photos | Getty Images

    He wants to put $2 trillion towards infrastructure, with an emphasis on promoting clean energy. The program would largely be funded by the above tax hikes as well as increased “carbon taxes” on industries such as oil and gas. Biden’s plans call for investing in mass transit, efficient buildings and transportation, sustainable housing and agriculture, and carbon-free power infrastructure.
    Health care is also worthy of mention. Biden has not been a supporter of “Medicare for All,” but he has been a supporter of expanding the current Medicare program by lowering the age of eligibility.  He has also proposed a public insurance option.
    As for Trump, he has offered a $1 trillion infrastructure package, likely to be funded with fuel taxes. His plan focuses on more traditional infrastructure such as roads, bridges and water systems but also focuses on wireless infrastructure and rural broadband. Like Biden, he supports spending on mass transit and energy, though, on the latter topic, the president has been less vocal on stimulating clean energy solutions and more vocal about energy independence.

    Investing around political platforms

    While tax planning around the candidates’ platforms may be relatively straightforward, investing around political platforms is less clear-cut. It requires three assumptions:
    Legislation will go through as advertised in the campaign. Concessions usually need to be made from both sides even when one party controls all of Congress. Take, for example, the attempts to repeal the Affordable Care Act. Even in the earliest days of a unified Republican government, repeal efforts failed.
    Companies will be unable to adapt to industry change. As noted above, legislation rarely happens quickly. Impacted industries generally have months — if not years — to adapt and diversify around the opportunities that are created from change. Smart, long-term investments are not typically predicated on a political landscape that potentially changes every two years.
    Ceteris paribus – everything else stays the same. While the concept is a useful tool for economic theory, it rarely prevails.  There are many moving parts within the economy, company fundamentals, and other investment variables.
    As the general election goes into full swing, some commentators will suggest things like loading up on infrastructure and changing exposures to or within the energy or health-care sectors. Their predictions could make sense if the three assumptions above hold true. A few of them may even work out in the months immediately before and after the election.
    We believe that, from a planning perspective, investors should keep their sights on the long-term secular trends that live well beyond two-year election cycles.
    From a financial-planning perspective, prudence dictates a consideration of everything that might happen in the upcoming election. It also dictates readiness to react and the resolve not to overreact.
    — By Michael Nathanson, chairman & CEO of The Colony Group, and Liam Hurley, intern at The Colony Group and University of Massachusetts Amherst student More

  • in

    Small business confidence rebounds from all-time low, but Main Street still has a long way to go

    Popular summer vacation spot Provincetown, Massachusetts, is taking Covid-19 seriously, mandating mask-wearing and limiting the number of customers in stores, but consumers are still out. (Photo by Zach D Roberts/NurPhoto via Getty Images)
    NurPhoto | NurPhoto | Getty Images

    Small businesses are feeling somewhat more optimistic, adapting operations to the new economic and public health normal as coronavirus cases continue to rise around the county. But even in the face of progress, the worst is far from over for Main Street, which is facing an unprecedented and rocky recovery.
    Small business confidence ticked up in the third quarter of the year, to 53 from a record low of 49 in Q2, according to the CNBC|SurveyMonkey Small Business Survey. Even with the rebound, the confidence reading is the second-lowest score in the survey’s history and eight points off where confidence stood to start the year.

    “This is not the V-shaped recovery we were hoping for. Things are certainly better than they were last quarter, but far off their marks from what we had seen earlier this year and last year,” said Laura Wronski, research scientist at SurveyMonkey. “These small businesses are going to have long-lasting effects from this pandemic.”

    The operating environment on Main Street has been bleak, even with government loan assistance like the Paycheck Protection Program meant to offer a lifeline to struggling businesses. The House Small Business Committee last month reported 110,000 small businesses had closed permanently and another 7.5 million across the country were facing the same fate. Enhanced unemployment benefits that gave consumers more spending power in recent months also expired at the end of July, which stands to impact businesses of all sizes.

    Just 36% of businesses say that current operating conditions are “good” in this quarter’s survey, which is a major improvement from last quarter’s 18%. But nearly one-fourth say conditions are bad — three times the number who said conditions were poor to kick off the year.
    The survey was conducted from July 20-27 among more than 2,000 small business owners nationwide.
    “I think that small business owners see that economics are opening and we are not going to be moving backwards,” said Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council, a Main Street advocacy group. “They see a light at the end of the tunnel.”

    The smallest small businesses are the most likely to describe business conditions as “bad.”
    CNBC|SurveyMonkey Q3 Small Business Survey

    More business owners are also reporting they will be able to stay afloat for a longer period of time, with nearly two-thirds reporting they are able to continue to operate for more than a year under current conditions, doubling from May. The outlook has been buoyed, at least in part, by government assistance, but the PPP expired Saturday for businesses who have not yet applied for a loan. Lawmakers in Washington, D.C., have yet to reach any agreement over a new aid package for Americans, including new loan programs and second-draw PPP loans for businesses in need. President Trump’s executive orders signed over the weekend, which include unemployment assistance, a payroll tax hiatus, student loan relief and eviction protection, do not cover small business.
    “These business owners have learned to do more with less,” Kerrigan said. “And do more with technology, which has allowed many of them to operate more efficiently to innovate more and think of new ways to serve customers, while also cutting costs.”
    A quarter of entrepreneurs surveyed who had to lay off or furlough workers due to shutdowns have hired workers back, with a third saying they’ve hired some workers back, and 15% reporting they have not hired anyone back and do not plan to.
    The pandemic has altered business operations in a major way for many. The survey finds that nearly 70% expect the pandemic will likely have permanent impacts on the way they run their businesses, with more than half saying they’ve had to spend money on new virus-related safety measures. A third say these new precautions are eating directly into profits, but only 9% have passed those costs on to customers.

    “People are making changes to adjust for all of the turmoil in recent months,” Wronski said, and she added that optimism may be increasing simply because we know a bit more about Covid-19 as a nation than we did in the previous survey period.
    “A significant minority of businesses [13%] report that they are still shut down, and most who have laid off workers have hired back some or all of them,” said the SurveyMonkey research scientist. “Last quarter, businesses were shut down and most were sheltering in place — we didn’t know all that we know now about how to prevent the spread of Covid. As a country, we don’t have the virus under control, but we have more information on what we can all do as individuals—wearing a mask, keeping six feet apart — to keep everyone safe. Taking those precautions is what’s allowing businesses to reopen.””
    The CNBC|SurveyMonkey Small Business Survey for Q3 2020 was conducted across over 2,000 small business owners between July 20-July 27. The survey is conducted quarterly using SurveyMonkey’s online platform and based on its survey methodology. The Small Business Confidence Index is a 100-point score based on responses to eight key questions. A reading of zero indicates no confidence, and a score of 100 indicates perfect confidence. The modeled error estimate for this survey is plus or minus 2.5 percentage points. More