COVID-19 has had an adverse effect on portions of our business and we could experience further negative consequences and/or materially adverse effects.
In December 2019, a novel strain of coronavirus emerged in Wuhan, Hubei Province, China, which has and is continuing to spread throughout the world, including the United States. On January 30, 2020, the World Health Organization declared this outbreak a “Public Health Emergency of International Concern,” and, on March 11, 2020, the World Health Organization characterized COVID-19 as a “pandemic.” The governments of many countries, the vast majority of U.S. states and many cities and other jurisdictions have ordered their residents to cease traveling to non-essential jobs and to curtail all unnecessary travel, and to stay in their homes as much as possible as the world continues to confront COVID-19. As visibility in our global markets decreases and demand uncertainty intensifies, we are not able to predict or reasonably estimate the ultimate impact of COVID-19 on our business. However, if the current economic conditions worsen or last for an extended period of time, we could be forced to significantly scale back our business operations or growth plans, which could have a material adverse effect on our business.
Overall, COVID-19 did not materially adversely affect our consolidated financial results in the first fiscal quarter ended March 28, 2020. However, we expect that COVID-19 will have a negative impact on our second quarter and fiscal year 2020. In the short-term, demand in our Label and Graphic Materials (“LGM”) reportable segment has increased, driven by significant order strength for our label materials sold for use in the food, hygiene, pharmaceutical, and variable information market segments. Some of the increase in demand is likely due to consumers being required or encouraged by governmental authorities to stay at home, schools being closed, and employers requiring employees to work remotely and/or implementing furloughs and layoffs. This increased demand may not continue and/or demand may decrease depending on the duration and severity of the pandemic, the length of time it takes for normal economic and operating conditions to resume, the extent to which excess inventory built during the early stages of the pandemic leads to destocking by consumers and/or the supply chain, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties. These events may result in business and manufacturing disruption, inventory shortages, delivery delays, and reduced sales and operations, any of which could materially affect our business.
We expect our RBIS reportable segment to be the most negatively impacted by COVID-19, most significantly in the second quarter, as a result of widespread retail store and apparel manufacturing closures. Likewise, we expect reduced demand in our graphics products and Industrial and Healthcare Materials (“IHM”) reportable segment’s industrial categories, driven largely by automotive end market weakness.
The ability of our employees to work may be significantly impacted by COVID-19.
Our employees have been affected by COVID-19. Our office and management personnel have generally been working from home, and some of our employees engaged in manufacturing, production and distribution facilities have been restricted by governmental orders from coming to work. We have experienced, and expect to experience in the future, temporary facility closures in response to government mandates in certain jurisdictions in which we operate. The safety, health and well-being of our workforce are top priorities and we may need to enact further precautionary measures to help minimize the risk of our employees being exposed to the novel coronavirus. COVID-19 could also disrupt our ability to secure supplies for our facilities and to provide personal protective equipment for our employees. Further, our management team is focused on mitigating the adverse economic effects of COVID-19, which has required and will continue to require a large investment of time and resources across our entire company, thereby diverting attention from other priorities that existed prior to the pandemic. If these conditions worsen, or last for an extended period of time, our management team’s ability to manage our business may be impaired, and operational, cybersecurity and other risks facing us prior to the pandemic may be elevated.
We cannot predict the impact of COVID-19 on our customers, suppliers, vendors, and other business partners.
COVID-19 is affecting our customers, suppliers, vendors, and other business partners, but we are not able to assess the full extent of the current impact nor predict the ultimate consequences that will result. Delays in production or delivery of components or raw materials in our global supply chain due to restrictions imposed to limit the spread of COVID-19 could delay or inhibit our ability to obtain supply of components and finished goods. While disruptions to our supply chain during the first fiscal quarter ended March 28, 2020 were not significant, if current conditions worsen or last for an extended period of time, our supply chains could be materially adversely affected. If our sales channels are substantially impaired for an extended period of time, our business could be materially adversely affected.