Prolonged rains seen weighing on retail, construction, logistics

By Alexandria Grace C. Magno, Reporter

PROLONGED MONSOON RAINS are expected to weigh on the third-quarter operations of consumer-facing and construction companies, while logistics and mining firms could face higher costs and delays, analysts said.

“The prolonged monsoon rains are likely to create a modest but noticeable drag on third-quarter corporate activity,” Toby Allan C. Arce, head of sales trading at Globalinks Securities and Stocks, Inc., said in a Viber message on Wednesday.

He said the impact would vary across industries and would likely remain temporary unless severe weather persists through much of the quarter or causes significant damage to infrastructure and supply chains.

Heavy rainfall and flooding have affected parts of Metro Manila and Luzon in recent weeks, disrupting roads and prompting work and class suspensions.

He said retailers, mall operators, and restaurants could experience weaker customer traffic as prolonged rainfall makes travel more difficult and discourages discretionary spending.

He identified SM Prime Holdings, Inc., Robinsons Land Corp., Ayala Land, Inc., SM Investments Corp., Robinsons Retail Holdings, Inc., and Puregold Price Club, Inc. as among the companies that could see softer physical traffic during periods of heavy rainfall.

The impact would depend on their business formats, he added.

“Large destination malls and discretionary retailers are more vulnerable to consumers postponing visits, whereas supermarkets and essential retailers tend to be more defensive because purchases are necessities and consumers can shift the timing rather than eliminate spending altogether,” Mr. Arce said.

The earnings impact on mall operators would likely remain limited if weather-related closures are infrequent because rental income is partly protected by fixed leases, he said.

Mr. Arce said businesses tied more directly to customer spending, including tenant sales, cinemas, entertainment, and parking, could be more affected. Repeated disruptions could also hurt smaller tenants with limited financial buffers, he added.

BDO Securities Corp. President John Tristan D. Reyes likewise said retailers could see weaker foot traffic and sales.

Transportation problems could also disrupt store operations, while demand for basic goods could increase as households prepare for severe weather.

Philippine Seven Corp. (PSC) said the bad weather had already affected some of its stores. Same-store sales at some 7-Eleven branches fell by as much as 20% on particularly rainy days over the past two weeks, although the company said its overall sales momentum remained intact in July.

Speaking during the second day of the Philippine Stock Exchange’s Strengthening Access and Reach investor briefing on Tuesday, PSC Finance and Investor Relations Head Lawrence M. De Leon said same-store sales remained “okay” in July, supported partly by the company’s annual 7-Eleven Day promotion on July 11.

The effect of bad weather was cushioned by the geographic mix of 7-Eleven stores, with weaker traffic in some areas offset by activity in residential locations, he said.

Mr. Reyes said restaurants could experience fewer dine-in customers during prolonged rainfall, although delivery and takeout services could provide some support.

“Delivery and takeout orders may help offset some of the decline, but overall foot traffic tends to weaken during prolonged bad weather,” Mr. Reyes said in a Viber message.

He added that same-store sales growth among quick-service restaurants is generally slower in the third quarter.

Food manufacturers are relatively less exposed in the near term because consumers continue buying staple products, Mr. Reyes said. Prolonged rainfall, however, could affect agricultural production and raise raw-material costs.

“Most companies maintain sufficient inventories to cushion short-term supply disruptions,” he said.

Mr. Arce said flooding and excessive rainfall could damage crops and disrupt their transport, potentially pushing up agricultural commodity prices. Higher input costs could subsequently affect food manufacturers and restaurant operators if agricultural losses become widespread enough to influence food prices.

CONSTRUCTION, LOGISTICS
Construction and property companies could face more direct operational difficulties because persistent rainfall reduces workable days and could delay project completion and turnover, Mr. Arce said.

“Heavy rainfall can slow excavation, concrete work and other outdoor construction activities, while flooding can restrict workers’ access to project sites and disrupt deliveries of construction materials,” he said.

He identified Ayala Land, SM Prime, Megaworld Corp., Filinvest Land, Inc., and Vista Land & Lifescapes, Inc. as companies that could experience delays in construction schedules or project completions.

“The financial effect may show up less as permanently lost revenue and more as timing differences,” he said.

Some construction work, property turnovers, and related revenue recognition could shift into later periods rather than disappear entirely, Mr. Arce added.

Infrastructure contractors and construction-material suppliers face similar timing risks, Mr. Arce said. Fewer workable days could affect project progress and third-quarter billings, while extended delays could pressure companies that continue incurring fixed costs despite slower construction activity, he added.

Severe weather could eventually generate additional work for contractors and suppliers through repairs, drainage improvements, and flood-control projects, Mr. Arce said.

He also said logistics companies could face higher operating expenses as flooding and traffic congestion lengthen delivery times and increase fuel use.

Disruptions at ports and airports could also temporarily delay the movement of goods, he added.

Airlines and airport-related businesses could experience flight delays or cancellations during severe weather, although Mr. Arce said these disruptions would have to persist for an extended period to materially affect full-quarter earnings.

MINING, POWER
Mining companies are among the sectors most exposed to heavy rainfall because bad weather can disrupt extraction, transportation, and shipments, Mr. Reyes said.

Flooding and difficult access to mining sites could also raise costs and delay production.

The power sector could experience weaker demand during extended rainy periods as cooler weather reduces electricity consumption, he added.

“Cooler temperatures and weather-related disruptions typically reduce electricity consumption, which can soften power demand and electricity prices,” Mr. Reyes said.

He noted that historical third-quarter electricity demand has been about 6% lower than in the second quarter, while remaining about 8% higher than in the first quarter and 2% higher than in the fourth quarter.

Mr. Arce said the effect on utilities could vary. Greater water availability could support hydroelectric generation, while flooding could damage power-distribution facilities and increase repair and maintenance expenses.

Telecommunications companies could also incur additional costs when severe weather damages network facilities. The effect on revenue would generally remain limited because communication services are essential, he added.

Banks are expected to have less direct operational exposure as customers increasingly use digital services instead of physical branches. A prolonged period of flooding could nevertheless affect borrowers in agriculture, small businesses, and other weather-sensitive sectors, Mr. Arce said.

LIMITED BROAD IMPACT
Despite the sector-specific risks, the analysts said the rains alone do not warrant a broad reduction in third-quarter earnings forecasts.

“I would therefore avoid assigning a large across-the-board downgrade to third-quarter earnings solely because of the prolonged rains,” Mr. Arce said.

For companies that can quickly resume normal operations, the effect is more likely to involve postponed activity and additional costs than a permanent loss of demand, he added.

Mr. Arce said the impact could become more significant if unusually heavy rainfall continues through the rest of the quarter, as repeated disruptions could compound construction delays, reduce customer traffic, and raise logistics costs.

“The bigger concern would be if the rains remain unusually severe through the remainder of the third quarter,” Mr. Arce said.

Under that scenario, fewer construction days could delay project completions, repeated mall disruptions could weaken tenant sales, agricultural losses could raise food prices, and reduced mobility could weigh more heavily on discretionary consumption, he added.