Polar Vortex: 3 Winners, 3 Losers

by Dan Burrows | January 9, 2014 1:39 pm

Polar Vortex: 3 Winners, 3 Losers

The “polar vortex” that brought record cold to much of the country is finally starting to thaw, but the economic effects will linger on.

diamond in snow Polar Vortex: 3 Winners, 3 LosersEconomists estimate that the polar vortex will cost about $5 billion[1] and knock an annualized 0.2% off gross domestic product (although the economy will make that up soon enough).

Some of those polar vortex costs have no immediate economic benefit at all. Lost productivity never winds up in anyone’s pocket. And lost sales, refunds and other polar vortex expenses are going to show up on corporate income statements and balance sheets soon enough.

But in plenty of other ways, costs from the polar vortex can be someone’s gain. After all, storm prep and recovery generates demand for a wide range of businesses and industries. Hey, anyone running a plumbing or heating company is probably enjoying brisk business these days.

On a larger scale, the polar vortex has made plenty of enemies — but it has made some friends, too. Here are three winners and three losers from the polar vortex:

Polar Vortex Winner: Auto Parts

AutoParts185 Polar Vortex: 3 Winners, 3 Losers
Source: Flickr[2]

Cold weather is usually great for business at auto parts and repair companies. There’s nothing like snow, salt and wicked cold to drive extra demand for everything from snow tires to fan belts.

If past bouts of frigid weather are any indication, the polar vortex should be good news for auto parts companies like AutoZone (AZO[3]), Advance Auto Parts (AAP[4]) and Pep Boys (PBY[5]).

Investors will be keen for color on the effects of the polar vortex when these companies report quarterly earnings. However, the polar vortex also is going to set up tougher comparisons when next year’s quarter rolls around — that is, unless we get another nationwide deep freeze.

Polar Vortex Winner: Natural Gas Utilities

NaturalGas185 Polar Vortex: 3 Winners, 3 Losers
Source: Flickr[6]

The polar vortex ruined plenty of people’s plans, but it was a savior for anyone selling natural gas. Indeed, natural gas prices have been under pressure for years now, as higher production slams up against tepid demand.

Well, the polar vortex took care of that. In some Northeastern markets, natural gas prices rose 600% to hit record highs. Indeed, nat gas was selling for more than twice the price it usually does around this time of year.

That’s going to help natural gas utilities, especially those operating in the Northeast or hardest hit parts of the Midwest. Look for polar vortex benefits at National Fuel Gas (NFG[7]), Northeast Utilities (NU[8]) and Integrys Energy (TEG[9]), among other natural gas utilities.

Polar Vortex Winner: Winter Apparel Companies

WinterCoat Polar Vortex: 3 Winners, 3 LosersThis one is probably beyond obvious, but people scramble for the warmest clothes and most layers they can wear when the thermometer dips to -20 degrees or worse. Hats, gloves, scarves, coats, boots — you name it — demand is up.

That’s going to boost receipts at companies that sell winter apparel and footwear, like Columbia Sportswear (COLM[10]) and VF Corp. (VFC[11]), which owns the Timberland and The North Face brands.

Apparel retailers that sell winter items also saw a big pickup in demand. But whether the polar vortex becomes a net benefit remains to be seen.

After all, customers couldn’t necessarily go shopping.

Polar Vortex Loser: Airlines

airplane cabin interior empty 185 flickr Polar Vortex: 3 Winners, 3 Losers[12]
Source: Flickr[13]

If there’s any silver lining to what the polar vortex did to air travel, it’s that the nation’s airlines have plenty of experience dealing with these kinds of crushing disruptions.

But the polar vortex is still going to hurt. About 7,000 flights were cancelled on Monday and Tuesday alone, and the airline industry is still playing catch-up with the delays and scrubbed flights. Estimates put the total cost to airlines at up to $100 million.

JetBlue (JBLU[14]) looks to be the biggest loser among the airlines, but rivals like United Continental (UAL[15]) and Delta Air Lines (DAL[16]) will take some financial hit, too.

Polar Vortex Loser: Automakers

autos 300x277 Polar Vortex: 3 Winners, 3 LosersNo matter how much that car salesman encourages you, you really shouldn’t go for a test drive in a blizzard. Frozen roads, blowing snow and bitter cold put a dent in sales of new cars.

Fortunately — although it will hurt January sales — the damage done by the polar vortex should be nothing more than a blip for carmakers like Ford (F[17]) and General Motors (GM[18]).

New vehicle sales have been recovering for a couple years now, and the 2014 forecast is for new car sales to hit 16.4 million — the highest level since 2006. The polar vortex will take a bit away from this month’s figures, but they will be made up soon enough.

Polar Vortex Loser: Employment

UnemploymentApplication185 Polar Vortex: 3 Winners, 3 Losers
Source: Flickr[19]

Effects from the polar vortex will be temporary, but they could distort the employment picture in some disappointing ways.

Hiring has accelerated sharply[20] since last fall, as employers have been bringing in an average of 200,00 new workers a month. However, the polar vortex likely will skew the January figures, especially when it comes to jobs in construction. You don’t start or continue work on outdoor structures in record-cold temperatures.

The construction industry added 17,000 new jobs in November, led by specialty trade contractors. We can expect that number to take a hit when this month’s jobs report is released in early February.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Endnotes:
  1. the polar vortex will cost about $5 billion: http://www.upi.com/Top_News/US/2014/01/09/Polar-vortex-price-tag-5-billion/UPI-52821389243660/?spt=rln&or=4
  2. Flickr: http://www.flickr.com/photos/modenadude/3289493495/
  3. AZO: http://studio-5.financialcontent.com/investplace/quote?Symbol=AZO
  4. AAP: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAP
  5. PBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=PBY
  6. Flickr: http://www.flickr.com/photos/mkrigsman/3279565519/
  7. NFG: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFG
  8. NU: http://studio-5.financialcontent.com/investplace/quote?Symbol=NU
  9. TEG: http://studio-5.financialcontent.com/investplace/quote?Symbol=TEG
  10. COLM: http://studio-5.financialcontent.com/investplace/quote?Symbol=COLM
  11. VFC: http://studio-5.financialcontent.com/investplace/quote?Symbol=VFC
  12. [Image]: http://investorplace.com/wp-content/uploads/2011/09/airplane_cabin_interior_empty_185_flickr.jpg
  13. Flickr: http://www.flickr.com/photos/davelevy/
  14. JBLU: http://studio-5.financialcontent.com/investplace/quote?Symbol=JBLU
  15. UAL: http://studio-5.financialcontent.com/investplace/quote?Symbol=UAL
  16. DAL: http://studio-5.financialcontent.com/investplace/quote?Symbol=DAL
  17. F: http://studio-5.financialcontent.com/investplace/quote?Symbol=F
  18. GM: http://studio-5.financialcontent.com/investplace/quote?Symbol=GM
  19. Flickr: http://www.flickr.com/photos/44447091@N08/
  20. Hiring has accelerated sharply: http://investorplace.com/2013/12/november-jobs-report/

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